Are you drowning in back taxes and unable to pay what you owe? Have you considered a tax settlement to help you get a handle on your finances?
While it’s true that the IRS appears to be a big, scary, all-powerful entity that could (in theory) take your money, your assets, and even your home, wage garnishment and tax levies are actually the last resorts to collect unpaid tax debt.
In reality, the IRS is often happy to reach an agreement that gives the agency a portion of the tax money owed and allows the IRS to close out your case. Such an agreement is called a tax settlement. (And the same goes for state tax debt. Your state tax organization is most likely willing to listen to a settlement offer, too.)
A tax settlement may allow you to settle your case for less than the original amount of money owed. You might also negotiate for a more favorable payment plan.
In some cases, an individual can fill out IRS form 843 and file for a first-time penalty abatement. If there are multiple late payments and the taxpayer is hoping to prove reasonable cause for their late payment and receive penalty abatement, the best chance of success lies with hiring a tax professional to help.
It costs the IRS money and human resources to try to collect unpaid tax debts. In recent years, IRS budget cuts have resulted in a 21 percent reduction in Automated Collection Service representatives and a 28 percent drop in Field Collection personnel who attempt to collect unpaid tax debts. Additionally, it costs the IRS an average of 35 cents to collect $100 in taxes—presumably more to collect unpaid tax debt. If you approach the IRS and attempt to make an offer, the IRS sees this as an opportunity to collect some money, rather investing more money in your collections case.
However, this scenario may be changing. Beginning in April 2017, the IRS has hired four outside agencies to begin collections of unpaid tax debt. It’s important to act now, before it becomes easier for the IRS to collect their unpaid tax debt, which could make the organization less willing to reach a settlement or reduce penalties.
A tax lien represents “the government’s legal claim against your property when you neglect or fail to pay a tax debt,” according to the IRS.gov website. It is a document filed by the IRS or another collection organization (such as the state tax department). The IRS may place a lien on your real estate, personal property, or other financial assets, such as a business.
If you should ever sell that asset, the IRS can seize the money from the sale to cover unpaid tax debt. Keep in mind, a tax lien is not a worst case scenario, because if you never sell the property, the IRS can’t collect any money from its sale. Learn more about tax liens, and what to do if you receive a Notice of Tax Lien from the IRS in this article.
A tax levy is more serious than a tax lien. A tax levy gives the IRS or other agency permission to seize your assets, including your real estate, personal property, financial assets, or your business, to cover unpaid taxes. If you receive a notice of a tax levy, it’s crucial to contact a tax attorney immediately to discuss your options.
If you receive a Notice of Tax Lien or a levy, stay calm. There is always a way out, as long as you act quickly and do the right thing. Begin by contacting a tax professional who can help you explore your best options. You may be able to negotiate a direct debit installment agreement with the IRS. As long as your tax debt is less than $25,000, once you’ve made three consecutive on-time payments, you can file a withdrawal of your notice of Federal Tax Lien.
You can also stop a tax levy by negotiating an installment agreement of filing an offer-in-compromise. A tax professional can help.