Taxpayers often experience significant financial strain and even fear when faced with the seemingly impossible task of dealing with the Internal Revenue Service (IRS). Even though the IRS is legally and lawfully obligated to collect all relevant taxes due, they are often willing to work out a payment plan to avoid taking legal action. This is called settling with the IRS, and it can be a complicated and stressful process. Here’s what you should know before attempting a settlement with irs.
Process for Settling with the IRS
Settling with the IRS is a relatively straightforward process, but it does require patience, organization, and staying up to date on any payments due.
When a taxpayer owes the IRS, an installment agreement is the most common form of settlement. This settlement gives the taxpayer an agreed-upon deadline to pay the balance in full. This agreement is usually done in monthly payments that a taxpayer can manage.
However, it is essential to note that installment agreements will not be considered if the taxpayer still owes money from a previous income tax return. Furthermore, the IRS generally requires agreements to extend more than 90 days in length require a financial statement and a deposit as security that payments will be made on time.
What to Do If You Can’t Pay the Full Balance
If a taxpayer cannot pay the full balance of their tax debt, a few options may work for their financial situation. One option is to apply for an offer in compromise (OIC). An OIC allows taxpayers to settle their debt by paying a fraction of the balance owed.
To qualify for an OIC, taxpayers must meet certain criteria from the IRS. Generally, the IRS looks at the taxpayer’s income, expenses, and assets when deciding.
Taxpayers should note that they will still be held liable for the full balance due if the IRS does not accept the offer amount. Additionally, taxpayers must be current on all their tax returns and filing obligations to be eligible for an OIC.
Another option for taxpayers unable to pay their tax debt is penalty abatement. This is a process in which penalties and interest are waived, often based on reasonable cause.
Again, the IRS considers various factors when making decisions regarding penalty abatement. These can include economic hardship, the death of a tax filer, or a financial disaster like a home fire or flooding.
Taxpayers should note that the longer they delay filing or paying, the less likely they will be approved for penalty abatement. Furthermore, taxpayers should be aware that even if the IRS waives the penalties, the principal balance due will still need to be paid.
Dealing with the IRS can be a difficult and stressful experience, but knowing what to do can help make the process easier. Before settling with the IRS, taxpayers should be familiar with their options and strive to remain organized and up-to-date on their payments. Depending on their individual situation, they may be eligible for an offer in compromise, installment agreement, or penalty abatement. Knowing exactly what the IRS is looking for and ensuring that all documentation is in order can help taxpayers find the best possible resolution for their unique situation.