How to Settle IRS Back Taxes : Settlement Methods
Methods Used in the Settlement of Owed Back Taxes
The IRS provides many methods to settle any back taxes you may have incurred. Because of different financial conditions throughout the United States, the IRS provides many different settlement methods. There are many individuals who are unable to pay their annual taxes. However, the worst thing to do is to ignore the payment completely. This is not a problem that will be ignored if you pretend it does not exist. If you do not try to settle the amount you owe through any agreement with the IRS, you will start to incur interest and penalties on the amount you owe, making the total amount in back taxes skyrocket. This article presents the IRS settlement methods available.
Take advantage of a tax relief specialist
Tax professionals are highly recommended for those with looming tax problems. Their core function is to take a look at your current financial situation and assist in making the correct choices in regards to your current tax problem. The utilization of services of a tax professional will save you money and time.
Choose an installment agreement
The most frequent settlement method is an installment agreement. The IRS considers those with these agreements in good standing providing they maintain their monthly payments. This means making sure they are paid on time and you pay at least the minimum amount required.
Look into a partial payment installment agreement
For individuals whose financial situation makes it impossible to meet the monthly requirements of an installment agreement, this settlement method is available to them. If you are eligible for this agreement, you are able to pay smaller monthly payments that, in total, will equal less that the complete amount due in taxes to the IRS. However, to be eligible, you would need to disclose your financial situation. Any rise in finances can mean that the IRS will increase payment amount or even terminate the settlement agreement.
Offer in compromise
This method is used when you want to settle tax amounts you owe for less than what is the original owed amount. When a company dealing in tax settlements informs you that they will assist you in “settling for pennies on the dollar,” this is the settlement option offered.
Get it declared that you are currently uncollectable
The IRS may decide that currently, you are uncollectable. If this occurs, they stop every collection action they have placed against you. After a certain period of time, they will once again look over your financial situation to see if it has improved. When combined with the next settlement method, some individuals get out of paying any of their taxes.
Wait for the statute of limitations to expire
The IRS has ten years to collect any taxes owed. This time frame starts at the original assessment date. If ten years pass and the IRS was not able to collect money from you, they are no longer able to collect the total tax amount.
Payoff your taxes in full
Paying your taxes in full is the most evident settlement method. Once an individual pays their taxes in full, the IRS halts all its actions and wipes your debt clean. A lot of individuals choose this option when possible to get the IRS off their back. However, if they do not have the money, they have to come up with creative options. Some individuals will end up borrowing money from their home by using a home equity loan. Some individuals choose to sell assets to cover the necessary balance needed to pay off an IRS balance at once.
Take advantage of penalty abatement provisions
If individuals owe large sums in back taxes, it can most often be correctly assumed that they also owe a hefty amount in penalties added to the total owed amount. If you continue to be negligent with your payment, these penalties can get bigger. If you can show a justifiable reason for why you have not paid your taxes and incurred the various penalties, the IRS enables you to abate a portion, or even all, of the accrued penalties added to their total back tax amount.
Establish financial hardship
The IRS does not initially know that you might not have any cash or assets, and will continue to hound you with notices and phone calls to pay back taxes. You are not required to take this constant form of harassment. If you are able to demonstrate financial hardship, the IRS will put your account on hold until you are in a more financially sound situation and can afford to start paying off back taxes.