Tax Liens

The Internal Revenue Service is allowed under federal law to place a tax lien on your personal property, real estate, bank accounts and personal possessions to settle back taxes. The tax lien allows the IRS to ...

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IRS Tax Settlement


Options for Settling Unpaid Federal Income tax debt

Tax debt can be an overwhelming burden for individuals, but failure to pay or underpaying tax liability is not the answer. Failure to pay tax debt can lead to hefty penalties and interest charges. The Internal Revenue Service has several tax collection efforts such as wage garnishment, federal tax liens, freezing your personal and business assets, and seizing your property which can be used to collect tax debt. Ignoring the problem will not make it go away.

If you are struggling to pay your back taxes, the IRS offers several types of tax settlement options to pay your tax liabilities. In certain circumstances, the Internal Revenue Service may be willing to accept less than the full amount of taxes owed to settle your tax debt.

If you have not paid your federal taxes or you have hefty interest and penalties it may be time to seek help from a tax attorney. Dealing with the Internal Revenue Service can be stressful and complicated. If you are struggling to pay federal tax debt, there is help. An Enrolled Agent, Certified Public Accountant (CPA) or Tax Lawyer can help identify several of the IRS tax settlement options including: paying the amount in full, Offer in Compromise, Installment Agreement and Currently Not Collectible.

Seeking advice from someone with experience negotiating with the IRS may help you avoid large penalties and interest. Enrolled Agents, CPAs and Tax Lawyers have the expertise and knowledge to analyze and negotiate the complexities of the Internal Revenue Service tax settlement options.

IRS Tax Settlement Options:

Pay your tax bill in full:

If you do not dispute the federal tax obligation that you owe, the first tax settlement option to consider is paying your tax bill in full. To avoid interest and penalties, it is important to pay your taxes as soon as possible.


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Installment Agreement

If you do not have the money to pay your back taxes in full, you may be able to pay your back taxes over time with pre-approved monthly installments. Unfortunately, an installment plan will not eliminate the interest or penalties, but you may be able to spread the required payments out over a longer period of time to make the tax obligations more manageable.

To stop IRS collection actions through the installment plan, you will have to make all the required tax payments and remain compliant with your future tax obligations. All tax refunds are applied to your current debt.

If the tax debt you owe is less than $25,000 you may be able to use the Online Payment Agreement application to apply for this tax settlement option. It may, however, be a good idea to talk to a professional with experience who can help negotiate the terms of the installment agreement prior to contacting the IRS.

It will always be less costly to pay all of your back tax debt immediately if possible, than agreeing to any type of installment agreement.

Offer in Compromise Process

Another popular tax settlement option is the Offer in Compromise (OIC) or Offer and Compromise as some people mislabel it. The Offer in Compromise is an agreement between the IRS and a taxpayer which will allow a qualifying individual to negotiate an IRS settlement for less than the full amount due.

If you can prove you are unable to pay your full federal tax liability, you may be able to qualify for the Offer in Compromise. Offer in Compromise does offer several benefits including:

  • Stopping the IRS tax collection process
  • Potentially lowering the amount of back taxes or tax liability that has to be paid.
  • Eliminating tax liens
  • Reducing a tax payers federal tax liability
  • Eliminating the need to file personal bankruptcy

One of the goals of the OIC program is to help individuals start paying their tax obligations again. The IRS can be a tough to negotiator and it is important to consult with an Enrolled Agent, CPA or Tax Attorney prior to agreeing to an Offer in Compromise. The IRS does not accept all Offer in Compromise applications. The Offer in Compromise may allow you to pay your debts through monthly installments, a lump sum payment, or over a 24 month period. To qualify for an Offer in Compromise, you can not be in open bankruptcy.

To qualify for Offer in Compromise one of the following conditions must exist:

  • Doubt of liability- The tax payer must prove that the amount of tax liability the IRS thinks they owe is incorrect. To contest the liability of tax debt, an individual can submit a Doubt as to Liability OIC by filing Form 656-L or calling 1-800-829-1040.
  • Doubt of Collectability- The tax payer must prove that they could never pay the full amount of federal tax debt owed by any of the other tax settlement options including the installment plans. It is important that you submit all of the correct tax information and tax forms.
  • Effective Tax Administration (ETA)- The amount of tax liability owed is correct and a tax payer could pay the tax debt, but exceptional circumstances exist which would cause an unfair or inequitable hardship if the tax debt was paid. An ETA statement will explain why it is unfair or inequitable for the tax payer to settle the tax debt.

In addition, the Offer in Compromise program will require the tax payer to file and pay all of their federal taxes on time for the next five years. All taxes must be filed or paid prior to the tax extension deadlines. Tax payers accepted to the Offer In Compromise (OIC) program also must pay the total amount agreed to in the Offer in Compromise and all tax refunds you receive will be applied to pay the current back tax debt.

Currently Not Collectible

In some cases the IRS may determine your federal tax debt is not collectible. If the IRS decides your tax debt is not collectible, it does not eliminate the back taxes or federal tax liability. Declaring debt "not collectible" means the Internal Revenue Service (IRS) has determined that paying your tax debt would cause "severe economic hardship" for you or your family.

The IRS will review your financial situation periodically to determine if you are able to pay your back taxes and unfortunately, interest and penalties will continue to accrue. This tax settlement option is not ideal, but it may give you a little time to collect the funds to pay your federal tax debt and stop the IRS debt collection process for a short while.



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