Do you owe back taxes? Are you looking at a bill for a lump sum of money you need to pay to the IRS and thinking there’s no way you can pay it? Here are 12 things you must know to negotiate a favorable IRS tax settlement.
If you consult with a reputable tax professional and follow their directions, you may be able to reduce your overall tax debt, set up a payment plan, and get back on your feet as you begin to pay off your tax debt.
But first, there are 12 things you must know to negotiate a favorable IRS tax settlement.
1. Come to Terms with Your Tax Debt
This first step to an IRS tax settlement is mostly mental, but it may very well be the most important.
Hiding from tax debt or ignoring IRS letters and phone calls will not help. At best, you will see your tax debt grow as late fees and penalties add up. At worst, you could go to jail.
The sooner you face your situation, the easier it will be to negotiate a favorable settlement.
[Quote: “The secret to getting ahead is getting started.”
2. Get Organized
Ignoring unpaid tax notices won’t make them go away or easier to find an IRS tax settlement. You’ll want to be prepared, mentally and on paper, when you begin to seek help to negotiate a favorable agreement.
First, gather all your collection notices in a file folder that’s kept in plain sight. Then write a budget so you know how much you can afford to pay monthly if you negotiate a settlement. That’s not as hard as it sounds. Simply write down your total monthly net (after taxes) income and subtract your household expenses. This will give you an idea of how much you can pay the IRS each month.
3. Know What You Owe
To negotiate a favorable IRS tax settlement agreement, you need to know where you stand. First, speak to an accountant and see if they can reduce your overall tax liability. You have up to three years to file a revised return. If you did your taxes yourself, you may owe less than you think once a professional looks over your return.
4. Always File Your Return
Failing to file a tax return if you owe taxes can lead to heavy penalties, ranging from a penalty equal to 5 percent of your unpaid tax bill for every month it’s late, up to 25 percent—all the way up to criminal persecution.
In addition, the IRS may file your return for you and send you a tax bill. Their preparers aren’t likely to give you all the deductions and tax credits you deserve, so the bill will be higher than it should be.
5. Get Professional Legal Help
In recent years, the IRS has enacted laws that make it easier to negotiate a debt settlement and payment arrangement. But you must follow their guidelines to the letter and fill out forms correctly.
A tax attorney knows the proper procedures and can ensure the accuracy of your documents. It’s best to have a professional by your side, not just for morale support (which can help!) but for their knowledge and expertise.
6. Pay When You Can
Pay your tax debt if you can afford to do so. Of all your creditors, the IRS has the most power, quite frankly, to make your life miserable.
Not paying the IRS can result in:
If you don’t have the income or assets to pay, you may qualify to get your entire debt obligation settled. Get professional help to assist.
7. Pay Attention to the Expiration of the Statute of Limitations
You may have heard that there’s a statute of limitations on tax debt. That is correct. The IRS cannot collect taxes owed after the Collection Statute Expiration Date, typically 10 years from the day the taxes were due.
Because the IRS faces a continuous backlog of unpaid tax debt, with inactive tax receivables totaling $380 billion, it’s entirely possible that if your taxes are past due by many years, the IRS simply won’t get around to collecting.
However, actions may suspend or extend the CSED, so it’s important to consult a tax professional to find out the exact date your tax debt will expire.
8. Make Sure You Submit the Proper Forms
If you enter a repayment program, you may be able to get any liens on your property lifted by the IRS. However, you must submit the proper paperwork to request the liens be lifted.
A reputable tax debt resolution firm knows the right steps to take—and the deadlines—so you can remove liens and levies as quickly as possible.
9. If You Miss IRS Deadlines, You Lose Negotiating Power
If you miss deadlines—or just ignore them—you could lose the opportunity to reduce your debt.
Every year the IRS systems and software get more sophisticated and gather more information about taxpayers. If you are required to file a federal tax return and you fail to do so, or if you have unpaid tax debt, there’s a good chance the IRS is already on the case.
Your tax problems won’t go away by ignoring them; they will likely get worse. A tax professional can help ensure you meet all IRS deadlines.
10. Understand Your Debt Resolution Options So You Can Choose the Right One
The IRS Offer in Compromise (OIC) initiative is one tax debt resolution method that gets a lot of attention. But the OIC has a long list of requirements to qualify. There are other options that may work better, like an installment agreement or partial payment installment agreement.
If you’re facing credit card debt or personal loans on top of your tax debt, Chapter 7 Bankruptcy may provide relief.
11. Find Out if Bankruptcy Can Help Eliminate Your Tax Debt
While Chapter 7 bankruptcy may solve some debt problems, understand that not all tax debt will be forgiven in a bankruptcy.
For instance, you won’t be able to eliminate payroll tax debt or fraud penalties.
Additionally, you can only include tax debt in your bankruptcy filing if:
Keep in mind, if you settle with a Chapter 13 bankruptcy repayment plan, you’ll have to pay your entire tax debt in installments.
12. Don’t Provide Information to the IRS without Legal Counsel
If an IRS agent requests information, such as hidden assets or unreported offshore income, politely ask him or her to contact your lawyer. The agent may already know the answers.
But if you admit to it on a recorded line, it could be used against you in legal proceedings. It’s a good idea to have your attorney or tax representative with you on any call with the IRS. These professionals know the best way to handle almost any situation.
The Bottom Line
Facing an IRS tax settlement is scary. But you don’t have to face it alone. Finding a reputable tax attorney is the first step to gaining freedom from unpaid tax debt.