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.
The bad news, however, is that it’s not easy to negotiate a tax settlement on your own. It’s hard to even reach the IRS by phone, and when you do reach them you will be only be able to talk to a customer service representative and the all the information you provide can be held against you.
So what’s a taxpayer in trouble to do? A number of tax relief companies and tax attorneys are ready and willing to negotiate with the IRS on your behalf, potentially saving you money and giving you more time to pay your tax debt. Solvable is here to help you sort through your options.
There are a number of dangers inherent in not paying your tax debt or failing to negotiate a tax settlement if you cannot pay your taxes in full. The IRS can threaten (and take) legal action. The organization can garnish your wages, place a tax levy on your property, and even take away your passport so you lose the right to travel as you please. Keep in mind, avoiding your tax debt is a prosecutable felony that can cost you tens of thousands in legal fees to defend yourself.
Unlike other creditors, who all must get in line behind the IRS to collect what they are owed, the IRS can legally take your retirement funds, paycheck, home, car, and even your business.
Of course, if you can manage to dodge the IRS, there is a slim chance you can get away without paying your tax debt long enough that the statute of limitations (10 years) will expire. But the IRS continues to streamline their operations and processes and to add more staff each year, with the sole purpose of being able to collect unpaid tax debts more efficiently.
And who wants to live every day in fear that your tax debt will catch up to you? You could ultimately lose everything you own. In fact, you could face up to five years of imprisonment, a $250,000 fine, and the cost of prosecution, not to mention the legal fees you’ll spend trying to defend yourself.
Tax Settlement: An Easier Alternative
Tax settlement, while not exactly painless, represents a much easier alternative. Not every taxpayer is eligible for a settlement, but it’s worth talking to a tax debt relief firm to see if you may qualify.
Tax debt relief programs aren’t easy to understand. They are based on complex tax laws and have strict requirements for qualification. Additionally, you’ll need to show the IRS just how much you can (and can’t) afford to pay. You’ll want to tax relief firm to negotiate an agreement that you can afford. And if you negotiate an installment agreement, you’ll want to ensure that it leaves you enough money to live on. You’ll want to be able to pay your rent or mortgage, buy gas for your car so you can get to work, and have money to eat and pay other bills, too.
Trying to negotiate a tax settlement by yourself could leave you with too little options, or could lead you to make an offer that the IRS rejects. A reputable, experienced tax debt relief firm knows how to negotiate with the IRS to reach an equitable agreement and may be able to save you tens of thousands depending on your situation.
If you’re considering a tax settlement with help from a tax relief firm, you should understand the steps.
Doubt-as-to-liability simply means that you may not owe as much in taxes as the IRS claims. The tax examiner may have made an error in assessing your tax liability, or there may be additional evidence that’s come to light that shows you don’t owe as much as the IRS says. A tax professional can help determine if there is doubt-as-to-liability, and help you prove it to the tax collection agency if there is.
In some cases, the IRS will waive penalties and interest owed on a tax bill that is paid late. There are a number of reasons taxpayers can file for a penalty abatement. These include:
Unfortunately, these methods are usually not successful. The IRS is most likely to offer a penalty abatement if it is your first time ever paying a tax bill late. You may be eligible for a first-time penalty abatement as a business or individual taxpayer if you have no penalties for three prior tax years, you’ve filed all required returns or filed for an extension, and you have paid, or made an arrangement to pay the taxes due. The IRS may also waive any interest that has accrued on the penalty.
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.