Understanding IRS Debt Settlement Options
The IRS offers several options for settling tax debt, including payment plans and offers in compromise. A payment plan allows taxpayers to make monthly payments towards their tax debt, while an offer in compromise allows taxpayers to settle their debt for less than the full amount owed.
To qualify for an offer in compromise, taxpayers must demonstrate that paying the full amount of their tax debt would cause them significant financial hardship. The IRS considers factors such as income, expenses, and assets when evaluating offers in compromise.
How to Apply for an Offer in Compromise
To apply for an offer in compromise, taxpayers must submit Form 656, Offer in Compromise, and Form 433-A, Collection Information Statement. Taxpayers must also pay a $205 application fee, unless they qualify for a fee waiver.
The IRS will review the taxpayer's application and may request additional information or documentation to support the offer. If the IRS accepts the offer, the taxpayer must agree to pay the settled amount and comply with all tax laws and regulations for a period of five years.
Payment Plan Options for IRS Debt
The IRS offers several payment plan options for taxpayers who cannot pay their tax debt in full. A short-term payment plan allows taxpayers to make payments over a period of 120 days or less, while a long-term payment plan allows taxpayers to make payments over a period of more than 120 days.
To qualify for a payment plan, taxpayers must owe $50,000 or less in combined tax, interest, and penalties, and must have filed all required tax returns. Taxpayers can apply for a payment plan online or by phone, and must pay a setup fee, unless they qualify for a fee waiver.
Consequences of Not Paying IRS Debt
If taxpayers fail to pay their tax debt, the IRS may take collection actions, such as filing a tax lien or levying on bank accounts or wages. A tax lien can affect a taxpayer's credit score and make it difficult to obtain credit or sell property.
In addition, the IRS may charge penalties and interest on unpaid tax debt, which can increase the amount of debt over time. Taxpayers who are experiencing financial hardship may be able to temporarily delay collection actions by submitting a request for currently not collectible status.
Seeking Professional Help for IRS Debt
Taxpayers who are struggling to pay their tax debt may benefit from seeking the help of a tax professional, such as an enrolled agent or tax attorney. A tax professional can help taxpayers navigate the IRS collection process and identify the best options for resolving their tax debt.
Tax professionals can also represent taxpayers in negotiations with the IRS and help them prepare and submit required forms and documentation. By seeking professional help, taxpayers can ensure that their rights are protected and that they receive the best possible outcome in their tax debt case.
Frequently Asked Questions
What is the difference between an offer in compromise and a payment plan?
An offer in compromise is a settlement of tax debt for less than the full amount owed, while a payment plan allows taxpayers to make monthly payments towards their tax debt.
How long does it take to resolve an IRS debt case?
The length of time it takes to resolve an IRS debt case can vary depending on the complexity of the case and the responsiveness of the taxpayer and the IRS.
Can I negotiate with the IRS on my own?
Yes, taxpayers can negotiate with the IRS on their own, but it is often beneficial to seek the help of a tax professional to ensure that their rights are protected and that they receive the best possible outcome.
What is the currently not collectible status?
Currently not collectible status is a temporary delay of collection actions by the IRS, which can be granted to taxpayers who are experiencing financial hardship and are unable to pay their tax debt.
Can I pay my IRS debt with a credit card?
Yes, taxpayers can pay their IRS debt with a credit card, but they will be charged a convenience fee by the payment processor.
How can I check the status of my IRS debt case?
Taxpayers can check the status of their IRS debt case by calling the IRS or using the IRS online account tool.