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According to Uscourts.gov, a taxpayer is allowed to either negotiate a tax settlement for less than the total amount owed, or come to an agreement on another method for the IRS to collect taxes owed over time. In order for a taxpayer to qualify for either of these situations, the taxpayer must meet the qualifications of one of the tax settlement programs set forth by the IRS.
The taxpayer will first have to figure out which type of tax settlement they would like to apply for, and then submit the correct forms to the IRS for review before making a decision.
A taxpayer can either fill out the information themselves, or they can have a designated tax professional make the filing on their behalf.
When a settlement has been reached by both parties, the taxpayer will be considered to have good standing with the IRS for the tax year/years the settlement covered (unless the taxpayer either defaults or doesn’t hold up to all the terms in the agreement).
You first need to make sure you are in full compliance with your tax filing and be sure to file any unfiled tax returns.
If you did not file and the IRS has filed for you, it is highly suggested that you use a tax professional to file an amended return to possibly decrease the amount of taxes owed.
Once you have filed and know how much you owe, you can then begin to review the different types of tax settlement options and see which option you qualify for (if any).
The types of tax settlements are:
Offer in Compromise (OCI) –
An offer in compromise is the most common tax settlement that individuals think about when it comes to settling a tax debt with the IRS. However, it is one of the hardest to qualify for. To qualify for an offer in compromise, you will be required to send payment to the IRS for an amount of money that you can afford (payment plans are possible). The IRS then must be willing to accept that amount of money in order to relieve you of the remaining tax liability. When making the offer, you the taxpayer will have to convince the IRS that the amount you are offering is equal to or greater than the amount they would be able to collect from you through forced collections without forcing you into a financial hardship.
Penalty Abatement –
This type of tax settlements offers the taxpayer the chance to eliminate all or part of the penalties owed. Penalty abatement will not eliminate any of the base amount of tax owed, it just eliminates the penalties that have been added to that initial amount. This is one of the easier ways to settle taxes for less than the total amount owed. The IRS uses penalties as a way to force the taxpayer into paying the taxes sooner. The IRS does realize that there are times that the taxpayer has a legitimate reason for not paying or filing on time, and they have created penalty abatement for this reason.
Installment Agreement –
An installment agreement is the most common method for individuals to settle back taxes owed if the taxpayer cannot currently pay them in full. Under this type of settlement, the taxpayer is allowed to pay back the taxes they owe in monthly payments if they can pay off the entire amount owed in a three year period. This agreement is fairly easy to obtain if an amount of $25,000 or less is owed if greater, a tax professional is recommended.
Partial Payment Installment Agreement –
A partial payment installment agreement allows the taxpayer to enter into an agreement with the IRS to pay back the taxes owed over a specified time, and this amount may be less than the total amount initially owed. This option is typically available to those taxpayers that cannot meet the minimum payment amount required with the normal installment agreement.
Uncollectible Status –
This type of tax settlement is a form of agreement that temporarily puts the taxpayer off the hook until the taxpayer’s situation has improved enough for the IRS to begin taking collection actions against the taxpayer again.
The IRS and Colorado Department of Revenue are not your friend! They will continue to enforce collections on taxpayers even if they cannot pay. Even if these collections cause extreme financial hardship on the taxpayer, the IRS will not stop until the taxpayer proves to the IRS that they cannot pay. The IRS is a very automated machine, and the collections can only be stopped by tax filings. The IRS is very complex, and it is advised to use a tax settlement professional when attempting to make a settlement with the IRS. Don’t wait any longer to handle your tax issues. Let me, Joshua Bekerman, at Bekerman Law Firm, P.C., help you with your tax issues sooner, rather than later.
Individuals should consult an experienced Denver tax professional for advice regarding an individual situation.