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.
Not necessarily. You have the option to negotiate an offer-in-compromise, in which you offer to pay the IRS an amount that is less than your full tax bill. In some cases, you can also negotiate to have any fees and penalties waived. You may negotiate an installment agreement as part of the OIC, or make one lump sum payment to the IRS.
However, it’s important to note that, after March 27, 2017, you must have filed all required tax returns to be considered for an OIC. Additionally, an OIC is not likely to be accepted unless the offer is equal to or greater than the total of the taxpayer’s assets, which can be seized by the IRS. These assets include real estate, automobile, bank accounts, and anticipated future income, minus basic living expenses.
Even wage garnishment, however, doesn’t have to be the end of the world. There are a number of ways to stop wage garnishment, including negotiating a settlement agreement or an offer-in-compromise with the IRS. A tax professional such as a tax attorney or a tax relief firm can help you navigate these waters and reach an arrangement you can live with.
The IRS may accept an OIC in three separate circumstances. If there is doubt as to liability the IRS may accept an OIC. This means there is a dispute as to whether the tax debt is accurate and correct. If the IRS doubts the amount is fully collectible, the IRS may accept an offer that is in line with what they taxpayer can reasonably afford. Finally, the IRS may accept an OIC if the taxpayer can prove that payment in full would create an economic hardship or would be unfair due to exceptional circumstances.
If you fail to file your tax returns on time and you owe the IRS money, or if you fail to pay your taxes on time, penalties and fees will be assessed. The IRS will attempt to collect the debt you owe. Failure to file your taxes could even result in a fine of up to $25,000 or a prison sentence of up to five years.
It’s always best to meet all IRS deadlines or file an extension and, if necessary, communicate openly about your inability to pay your taxes.
You are legally permitted to negotiate an offer-in-compromise by yourself. But the odds are much higher if you enlist legal help in filing the OIC. In 2014, the IRS accepted 40.7 percent of the OICs it received. However, those filed with the help of a tax attorney often have an acceptance rate much higher than the national average.
Making an offer-in-compromise requires showing all your income, assets, expenses, and other figures that demonstrate your ability (or inability) to pay the full amount. The paperwork required to file an OIC is complex, and a tax attorney can help you fill it out accurately in order to increase the odds your offer will be accepted.