IRS Tax Settlements

A tax settlement is a very broad phrase that refers to a tax payer and the IRS coming into arrangement where their tax liabilities are satisfied through one of the IRS programs.

Several options are available for resolving IRS tax debts. The main consideration the IRS takes into account is the taxpayer’s financial ability to pay the tax debt back. This includes assets and an individual's income and or expenses.

Tax compliance is a must before consideration of an IRS tax settlement. If there are returns that have not been filed be sure to have these filed or prepared and ready to be submitted to the IRS.

Another consideration would be if the IRS is sending notices of an impending levy or of there is a levy in effect currently. Submitting some type of settlements will not automatically release a levy. It wont automatically remove an IRS levy that was set up before the IRS settlement, but it will stop collection attempts while it is under consideration.

Types of IRS Tax Settlements
IRS tax settlements fall into two general categories. One is where a taxpayer cannot pay the tax liability back in full and may qualify to pay back less than the tax debt owed. This would include the following:

Offer in Compromise
An Offer in Compromise is where the taxpayer offers the IRS a lesser amount than the amount owed in a onetime settlement. An Offer in Compromise can be submitted on the basis of Doubt to Collectability, Doubt to liability and Effective Administration (hardship case). The IRS has stringent guidelines and typically will require financial disclosure of income/expenses and assets.

Partial Payment Plan
A partial payment plan is where the taxpayer comes into an agreement with the IRS to pay back less than the amount owed over a number of months.

Penalty Abatement
Penalty abatement allows the taxpayer to abate part or all of the penalty charges. Typically, it will not eliminate interest and it will not reduce the principle of the tax liability that is owed.

If a taxpayer does not qualify to set up an IRS tax settlement for less than the amount owed there are two other options:

Installment 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. The interest will keep running while the installment is in place. A streamline installment, payable over 5 years, can be set up if the individual owes $25,000 or less. The IRS will require disclosure to financial information if the balance is over $25,000.

Uncollectible Status
Uncollectible is where the IRS suspends collection activities for the time being because of a hardship of the taxpayer. Usually because of unemployment or some other financial difficulty where the individual is unable to make installments at this time. This will neither stop interest from accruing or reduce the tax debt.