How to Settle Tax Debt with the IRS
No one likes to deal with the Internal Revenue Service, but if you fall behind on your taxes that could be exactly what you'll be forced to do--make a deal with the IRS. If you find yourself in a situation where tax day has passed you by and you were unable to come up with enough cash to meet your financial obligation, you'll have to find a way to settle that tax debt. Following are a few tips on how to settle tax debt with the IRS.
Try and Get an Extension
If at all possible you want to be able to pay the debt before the IRS has to come looking for you. If you are unable to, your next best choice is to try and get an extension. Essentially you're asking for more time to pay the bill. This is your best option if you hope to avoid stiff penalties. Normally an extension is 45 days. If you're still not able to pay after that period of time, you may be able to get another 45 day extension. Extensions of this nature are comparatively easy to get, because the IRS knows you're aware of your tax debt and are taking steps to pay it off.
Submit an Application for an Installment Agreement
If you're still not able to pay off the tax debt after an extension, or if you know you won't be able to pay it off on time, you have other options. You may be able to arrange a payment plan in order to pay the debt. It may be a good idea to submit an application for an Installment Agreement. In this way you can pay it off over time, and you won't have to come up with the whole payment at once. In order to avoid paying any more interest than you have to, it would be a good idea to pay off as much of the debt up front as you possibly can, and finance the rest. You'll probably have to pay a penalty, and interest will probably accrue, but the sooner you pay off the tax debt the better off you'll be.
Ask for a Partial Payment Installment Agreement
For those who have a huge tax debt, an extension or regular Installment Agreement may not be doable. There is a way you may be able to have the IRS forgive your debt, at least in part. It's called a PPIA, or Partial Payment Installment Agreement. Fundamentally it means you work out a plan with the IRS whereby you agree to pay a designated amount, less than what you actually owe, by making regular installments, and the remainder of your debt goes away. You must be able to persuade the IRS representative that given your present situation you'll never be able to come up with the funds to meet your financial obligations. Before they'll agree to a PPIA the IRS will have to be totally convinced that you've done whatever you can to settle the debt. That will probably mean you'll have to sell off any assets you have, such as antiques, automobiles, fine art, or property, and apply that to the tax debt. As you can see, the terms of a PPIA will be more stringent than a regular Installment Agreement. The IRS will keep track of your financial situation, and if your financial status improves, so will your payments.
Suggest an Offer in Compromise
After you've exhausted your other options, it may be possible to get an OIC, or Offer in Compromise from the IRS. An OIC works pretty much the same ways as a Partial Payment Installment Agreement; except that once the terms of an Offer in Compromise have been worked out they remain in effect until the tax debt is paid in full. However, that is only true as long as you continue to make your payments on time. If you fail to do that, the terms of the agreement are negated and you will probably be subject to much harsher penalties. You could even face prosecution in a court of law.
Last Hope--Not Currently Collectible
In the event your tax debt is extraordinary, the IRS may reevaluate your situation. If they come to the conclusion that you'll never be able to pay the tax debt or at the very least that you won't be able to pay for a very long period of time, you may be eligible to apply for a category called Not Currently Collectible. As the name implies, it doesn't mean you won't ever have to pay, only that they're convinced that you won't be able to any time soon. In order to satisfy the debt, the IRS may take out a tax lien on your future income, which means you won't even see the money; it would go directly from your paycheck into their coffers. The interest will continue to pile up, as will any penalties the IRS deems applicable.
Guest post from Bailey Harris. Bailey enjoys writing about couponing. She also writes about insurance quotes for InsuranceQuotes.org.