Tax Debt Settlement - How Tax Forgiveness Works

What Is An IRS Tax Debt Settlement?

A tax debt settlement is when a taxpayer settles their tax debt through one of the IRS tax forgiveness programs. The IRS offers tax debt settlements to taxpayers that are struggling with their tax debts or have valid reasons to abate their penalties. The IRS offers several different tax forgiveness options for taxpayers to settle their taxes owed. The main factor the IRS takes into consideration when determining if the taxpayer will qualify for a tax settlement is their financial situation. The tax debt settlement that a taxpayer qualifies for is dependent upon their unique financial situation. Obviously, the IRS prefers individuals to pay their taxes owed in full, but they will make exceptions for certain circumstances.

How an IRS Tax Debt Settlement Works

The IRS will allow a taxpayer to either negotiate a tax debt 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. A taxpayer must meet the qualifications of one of the tax debt settlement programs set forth by the IRS. The taxpayer will first have to determine which type of tax forgiveness program the taxpayer would like to apply for. The taxpayer must then submit the appropriate 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 lawyer make the filing on their behalf. Once a tax debt settlement has been reached by both parties, the taxpayer will be considered good standing with the IRS for the tax years that the tax settlement covered (unless the taxpayer defaults or doesn’t hold up to all the terms of the agreement).

Tax Relief - Tax Debt Settlement

Every day of the week, there are twenty million (20) taxpayers suffering from the overwhelming burden and stress of IRS tax debt. Recent changes in the tax laws the IRS has made it easier for financially struggling taxpayers to obtain Tax Debt Relief. The new changes for IRS Tax Debt Relief are called the "Fresh Start Initiative".

How to Settle Taxes Owed

In order to make a tax debt settlement or agreement over your taxes, you first need to make sure you are in full compliance with your tax filings 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 you use a tax lawyer to file an amended return to decrease the amount of taxes owed. Once you have filed the missing tax returns and know how much you owe, you can review the tax debt settlement options and see what tax forgiveness method would qualify for (if any at all). Below is a list of different tax debt settlements offered by the IRS.

Offer in Compromise (Tax Forgiveness)

An Offer in Compromise is the most common tax forgiveness procedure individuals think about when it comes to settling with the IRS. Not only is this the most thought of tax settlement procedure, but also the hardest one to qualify for. With an offer in compromise, you will be required to make an offer to the IRS of an amount of money that you can afford to pay (payment plans available) and the IRS must be willing to accept that amount of money in order to wipe the remaining liability clean. When making the offer you will have to convince the IRS that the amount you offer them is equal to or greater than the amount that they would be able to collect from you through forced collections without forcing you into financial hardship.

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 can be less than the total amount initially owed to the IRS. This option is typically available to those individuals that cannot meet the minimum payment amount required with the normal installment agreement.

IRS Penalty Abatement

Penalty abatement allows the taxpayer to eliminate all or part of penalties owed. Penalty abatement does not eliminate any of the income tax owed, just penalties added onto that initial amount. This is one of the easier ways to settle taxes owed for less. The IRS uses penalties as a way to bully taxpayers and scaring them into paying 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.

Currently not Collectible Status (Financial Hardship)

This form of agreement is not a Tax debt settlement. Being placed into Currently not Collectible status takes the taxpayer off the hook temporarily until their financial situation has improved enough for the IRS to begin taking collection actions against them again. If you Currently not Collectible, the IRS will place a federal tax lien on you but you will not pay. The IRS will periodically check on your financial status and the IRS will seize your tax refunds.


Important Tax Debt Settlement Notes

An important thing to know about the IRS is that they will continue to enforce collections on individuals 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 collections can only be stopped by tax filings. The IRS does not intend to put individuals in severe financial hardship, their system just has no way of knowing without receiving a tax settlement filing. The IRS is very complex and it is advised to use a tax settlement professional when attempting to make a settlement with the IRS. Most tax professionals will be able to analyze your financial situation and know if you are a likely candidate for the settlement before any filings are done.



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Flat Fee Tax Service

3200 4th Ave., Suite 208,

San Diego, CA 92103

Phone. 800-589-3078