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Tax Settlements A Tax Settlement is an agreement between a taxpayer and the IRS or State taxing authority to settle a tax debt for less than what is owed. It is a highly desirable resolution strategy because of the immediate savings it provides.
How do IRS Tax Settlements work? The IRS does not have a formal “Tax Settlement” program but offers other resolution alternatives that could result in reduced payments. There are several Tax Settlement strategies for IRS tax liability. Below is a summary of each strategy, starting with the one that could result in immediate savings
Offer in Compromise The most common resolution strategy for an IRS Tax Settlement is through the Offer in Compromise program. This allows you to settle with the IRS based on your inability to fully pay, doubt that you owe the tax liability, or that requiring full payment would create an economic hardship or be unfair due to exceptional circumstances. This resolution requires you to stay current and compliant with your tax payment and return filing requirements for 5 years after the offer is approved.
Penalty Abatement A Penalty Abatement may also yield savings by removing penalties from your total tax liability. Generally, penalties are abated when a taxpayer can establish reasonable cause for their failure to file or pay on time. The Penalty Abatement strategy is final, and the IRS generally cannot reassess the same penalties after they are removed. The downside is the difficulty in getting a Penalty Abatement request approved by the IRS.
Partial Pay Installment Agreement Another IRS Tax Settlement strategy is setting up a Partial Pay Installment Agreement. If the monthly payment remains the same throughout the life of the tax liability, the Partial Pay Installment Agreement would save you money because the tax liability would be written off when the Collection Statute expires. This strategy requires periodic financial statement reviews, which can result in a higher monthly payment amount, turning this Installment Agreement into a full-pay agreement.
Currently Not Collectible Currently Not Collectible is a temporary hardship status that does not require you to make payments on your tax liability. This strategy is generally based on a finding of economic hardship. The IRS can also place a tax liability in this status for closed and defunct businesses or if they are unable to locate a taxpayer. Currently Not Collectible status requires periodic financial reviews that could result in the same drawback as a Partial Pay Installment Agreement, including requiring monthly payments if your financial situation improves.
How do Tax Settlements affect taxes? A successful Tax Settlement strategy will save you money because you will not pay the tax liability in full. You will no longer have to worry about collection actions and can start over financially without the burden of tax debt. The key to keeping any of the Tax Settlement strategies in good standing is by keeping up to date with your current tax deposit, payment, and return filing requirements.
How to settle your IRS Tax Debt? To settle your IRS tax debt, we analyze your financial situation and other factors of your tax liability, such as Collection Statute Expiration Date, collection assignment status, and amount due. Southern Network Solutions Tax’s licensed tax professionals are experts in providing you with the best tax resolution strategies, which could include a Tax Settlement strategy.