An IRS tax settlement is an agreement between an individual and the IRS to settle a tax liability for less than the full amount. It is a general term that refers to one of the IRS settlement programs.
There are several options available to resolve IRS tax debts. The IRS will consider the individual’s ability to pay the tax debt as the primary consideration. This includes a person’s assets and income or expenses.
All tax returns must be filed prior to considering an IRS tax assessment. Make sure you have all your returns prepared and ready to send to the IRS.
Another consideration would be whether the IRS is sending notices of an impending lien or whether there is a lien currently in effect. Submitting some type of settlement will not automatically release a lien. It will stop collection actions while it is being considered, but it will not automatically release an IRS lien that was in place before the settlement was filed.
Types of IRS Tax Settlements
IRS tax assessments fall into two general categories. One is when a taxpayer is unable to pay the tax debt in full and may qualify to pay less than the tax debt due. This would include the following:
Offer in Compromise
An offer in compromise is when the individual offers the IRS less than the amount owed in a single agreement. An Offer in Compromise may be filed based on Doubt of Collectability: there is doubt about the taxpayer’s finances and whether the IRS could reasonably expect to collect the entire debt. Doubt about responsibility: there is doubt about whether the taxpayer really owes the debt. , and Effective Administration – case of difficulty. Based on their very rigid guidelines, financial disclosure of assets and income will generally be required.
Partial Payment Plan
A partial payment plan is when the taxpayer reaches an agreement with the IRS to pay less than the amount due during a specific period of time.
sentence reduction
Sentence reduction allows the individual to reduce some or all of the sentences. Generally, it will not eliminate interest and will not reduce the beginning of the tax liability due.
There are 2 additional options if the individual does not meet the financial requirements to file an IRS tax assessment:
Installation Agreement
An installment agreement is a form of IRS tax settlement in which the individual enters into an agreement with the IRS to pay the tax liability over a specified period of time. While the fee is in effect, the IRS levying action will stop, but the interest will continue to increase. A simplified installment, payable over 5 years, can be established if the individual owes $25,000 or less. The IRS will require disclosure of financial information if the balance exceeds $25,000.
uncollectible status
Bad debt is when the IRS temporarily suspends collection actions as a result of a taxpayer’s hardship. Usually due to unemployment or some other temporary financial hardship where the taxpayer is unable to pay the tax liability in one installment at this time. This will also not prevent the interest from increasing or reducing the tax debt.
