01 Nov What Can You Do to Settle Your Federal Tax Debt?
If you owe the IRS for past-due taxes, you’re familiar with just how stressful the situation can be. The IRS can be quite persistent in their collection efforts, and they do not take failure to pay lightly. Plus, the longer you go without settling the debt, the more fees and interest you’ll accumulate, making your situation that much more difficult.
If you’re struggling with the burden of a federal tax debt, there are actually several options available to help you settle that debt. Here is a brief overview of the 3 IRS-sponsored settlement options. Be sure to speak to one of our Provo tax advisors for more information on these options, and to determine which one is the best option for you.
An installment agreement is simply a monthly payment plan. The IRS is usually very willing to work with taxpayers to set up these payment plans; it is much easier for them to work out monthly payments with you than it is to pursue collection actions. So, if you owe less than $10,000 in federal taxes, an installment agreement may be an option available to you.
This isn’t something you should do alone, so be sure to meet with a qualified CPA to apply for an IRS installment agreement. We can help you figure out exactly how much you owe (a key part of the application process that requires extreme accuracy), and help you determine how much you can afford to pay each month. With those numbers calculated, we’ll submit the request to the IRS on your behalf.
If it’s approved (and it typically is, so long as you meet the criteria), you’ll make monthly payments to the IRS until your debts are completely paid off. It’s also important to note that any tax returns you receive while under an installment agreement will be automatically applied to your debt.
Partial Payment Installment Agreement
A partial payment installment agreement (PPIA) is a settlement option that is only available to taxpayers with more than $10,000 in federal tax debt. This payment plan works much in the same way as a standard installment agreement; you submit the request to the IRS and, if approved, make monthly payments. However, a PPIA only lasts for a set term, and once the term is up, the remainder of your debt is forgiven.
This type of settlement is a bit more difficult to qualify for, and you must make every monthly payment throughout the term of the PPIA to avoid going back into collections. However, one of our CPAs can help walk you through the process to ensure that your application and payment plans are set up properly.
Offer in Compromise
This tax settlement option is much more difficult to qualify for than the options listed above, and the application process is more time consuming as well. There is a full package of documents that require detailed financials, which must be submitted to the IRS along with an application fee and initial payment. In the package, you will submit an offer for a settlement amount, either in one lump sum payment or in periodic payments.
The IRS will review your settlement offer, along with your submitted financials. If they feel the offer is as much as they can expect to collect from you in a reasonable amount of time, then they will likely accept the offer rather than pursuing collection actions.
Determining which settlement options you qualify for, and ensuring that your settlement request is properly handled, can be a tricky business. Be sure to contact one of our Provo tax advisors for the best chance of having your settlement request accepted.