Settle IRS Debt

Consumers can settle IRS debt without forfeiting financial freedom. When it comes to owing money, no one likes dealing with Uncle Sam. But, surprisingly, Internal Revenue Service (IRS) collection policies are reasonable and pretty flexible. The United States government understands that the American taxpayer is subject to financial failure that may adversely affect an ability to meet tax obligations. Heads of household can lose jobs due to layoffs or chronic illness. Divorce not only separates spouses and destroys families, but it also wreaks havoc with a household budget. Business failures are on the rise and cash-strapped owners are sometimes left owing huge amounts in back taxes to state and federal governments. But whatever the reason taxpayers fall behind in payments to the IRS, the government is willing to work out a reasonable plan. To address the issue of delinquent payments, taxpayers may contact Internal Revenue collections via telephone or mail. Most delinquent payers receive a Notice of Intention to Collect in the mail with options for addressing past due taxes. The Internal Revenue website also offers contact information and tips on how to settle IRS debt.

The Internal Revenue collection letter will list the amount of the tax bill, along with penalties and interest due; and specific instructions on how to resolve past due debt. While most payers will not be able to submit large delinquent payments in full, provisions are available for monthly installments. Taxpayers may schedule repayment via an automated system accessed by telephone; however once payment arrangements are made, the IRS expects debtors to honor them. If payers default on arrangements, the Internal Revenue Service will begin sending delinquent notices to the payer's address with additional penalties and interest. For taxpayers who are in trouble financially but have a steady source of income, the IRS provides an Offer in Compromise. Essentially, the federal government is willing to broker a deal between a delinquent taxpayer and the U.S. Treasury Department to settle IRS debt. The Offer reduces the amount owed into more manageable increments based on a payer's income. The Offer in Compromise is a lengthy document, accessed online or by writing to the IRS, which details specific income and expense information for the debtor and their spouse.

Individuals and families who decide to submit an Offer in Compromise to settle IRS debt must provide a complete list of sources of income; installment loans and outstanding balances due on mortgage and automobile loans; balances owed on charge card accounts; and household living expenses, such as rent, utilities, food, and healthcare. Debtors must prove to the Internal Revenue Service that they are unable to repay the full delinquent balance owed to settle IRS debt, but are willing to compromise with a lesser payment spread out over several years. Once the Offer is submitted, taxpayers may be contacted with another letter indicating the federal government's acceptance of the debtor's proposed repayment plan -- usually within six weeks. Delinquent payments to resolve IRS debt must be submitted on time and in full; failure to honor an Offer in Compromise will result in the full debt being reinstated, plus additional penalties and interest. Paying taxes to the federal government is a Biblical principle and part of responsible citizenship. "And Jesus answering said unto them, Render to Caesar the things that are Caesar's, and to God the things that are God's. And they marvelled at Him" (Mark 12:17).

Taxpayers whose indebtedness to the federal government far outweighs an ability to pay may consider filing bankruptcy; however debts owed to Uncle Sam are not dischargeable in consumer debt protection. Debtors may request a consultation with local Internal Revenue Service counselors to investigate other possibilities of extended payment arrangements. The government is interested in most reasonable efforts to settle IRS debt. While attempts to repay past due amounts are honored, some delinquent taxpayers may be well over their head in back taxes. Bankrupt business owners, financially-challenged divorcees, and even military personnel may face garnishments and seizures of assets in an attempt to settle IRS debt. Some debtors may consider taking out a loan from a finance company or bank to resolve indebtedness to the Internal Revenue Service. The interest rate may be lower and debt resolution by financing a short- or long-term loan may enable payers to breathe a sigh of relief. Financial counselors can help debtors restructure personal indebtedness to afford monies to catch up back taxes.

If the U.S. government is unable to seize bank accounts or freeze assets due to a lack of debtor income, collection proceedings continue year after year, until penalties and interest can actually amount to more than the original tax owed. But alas, back taxes do have a statute of limitations. After ten years, the federal government must purge from a payer's account unpaid portions of back taxes. Owners of failed enterprises and those who owe huge amounts, but have little resources to repay Uncle Sam may wait for the statute of limitations to run out, but at a considerable risk. The government may attach income earnings, tap into bank accounts, or garnish wages if it feels that the delinquent taxpayer has any assets from which to settle IRS debt. Income earned by a spouse or business partner may also be attached, along with monies obtained via inheritance, contest winnings, or the sale of real estate. Additionally, future income tax refunds, including stimulus check payments, will be applied to delinquent balances. When it comes to owing the IRS, it may be best just to cry, "Uncle!" and pay up.

Settle Tax Debt

Although some businesses claim that they can settle tax debt for 'pennies on the dollar', these claims are rejected by many tax professionals, who regard such boasts as a scam which will only waste the taxpayer's time and money. Such businesses make convincing presentations, and claim to be specialists in settling tax obligations. They believe they have experience and a familiarity with these issues that even other professionals may not have, and they seek to negotiate a lower settlement. A certain tactic which is used to reduce IRS debt is called an 'Offer in Compromise'. While this is a legitimate procedure used to settle tax debt, some businesses may neglect to mention a few items.

A person intending to settle tax debt has several options as to the course he will take. Deciding to do something about the debt is an important first step. The problem will not go away on its own and the Internal Revenue Service is certainly not just going to forget about the obligation! Therefore, it is much better if an individual faces up to this responsibility and begins the repayment process. An 'Offer in Compromise' is just one way to settle tax debt. There are other options. If the taxpayer acknowledges that the amount demanded is correct, he may elect to set up an installment agreement. This is simply a monthly payment plan to pay off the money which is owed. At times there is another alternative, which is to establish a more long-term payment plan, which may include paying a reduced amount. If more time is needed, under certain circumstances there is a program where the Internal Revenue Service agrees to wait on the collection of this debt for about a year. The obligation is considered 'not currently collectible'. Of course this latter option would only be available for those who truly have no other alternatives, perhaps due to illness or lack of assets.

If one was in dire straits, filing for bankruptcy might discharge the debt, although this would be governed by strict rules under a Chapter 7 or Chapter 13 bankruptcy. This is a last resort type of option, for a bankruptcy has a lasting negative effect upon a person's credit score. Effects from a bankruptcy can be felt for ten years in some cases, as certain creditors apply this length of time to determine whether one is worthy of obtaining credit after a bankruptcy. If a person is (understandably) reluctant to destroy his credit score in this way, yet believes that other options are also unacceptable, an 'Offer of Compromise' might be considered as a way to settle tax debt.

Under an 'Offer of Compromise', the taxpayer offers to pay the compromise amount. He is also required to file taxes on time and pay taxes promptly for the next five years. Any refunds, payments or credits which were already applied to the account before the Offer in Compromise was submitted will be kept by the Internal Revenue Service. Any refunds which would have been due to the taxpayer during the year that the Offer in Compromise is approved also end up in the hands of the IRS. Now the process sounds reasonable so far, but what businesses which specialize in such matters do not always reveal is that about three quarters of settlement offers are rejected by the Internal Revenue Service! Also, there is no real need to 'specialize' in this procedure. Forms (#656, #433-A) to help determine whether one has any chance of qualifying for this program are available from the IRS and taxpayers can complete these application forms on their own or with the help of a tax professional. No special insight is needed in order to settle tax debt. Firms which claim otherwise become somewhat suspect.

The standards for meeting IRS requirements for an Offer of Compromise are high, and allowable expenses fairly stringent. For example, there are no differences in cost of living allowances, despite the fact that such costs can vary widely from one region to the next. Therefore, instead of a means to settle tax debt, sometimes an Offer of Compromise ends up just wasting more of the taxpayer's time and money. Tax professionals tend to steer clear of such proceedings, for presenting an Offer of Compromise leaves little room for other settlement offers. If a person can afford to hire a lawyer, he probably won't qualify as someone who has no chance of repaying the loan to the IRS. Other items which may discourage people from applying for an Offer of Compromise are that there is a $150 fee for the privilege, and the process can take from 1-2 years to complete. While it is true that needy persons can apply to have this fee waived (Form 656-A), the fact that fees on the debt continue to accrue is enough to make a debtor hesitate. Also, if the IRS determines that an individual does not qualify for the Offer of Compromise, or if a person does not fulfill the agreed-upon terms, the offer can be revoked and the full tax liability can be reinstated, along with penalties and interest. Also, collection procedures may begin at a more vigorous level.

Altogether, it seems that the most effective way (time and expense-wise) to settle tax debt is to simply set up a payment plan and repay any tax liability which the taxpayer agrees is due. Here the Scripture found in Romans 13:7-8 seems appropriate: "Render therefore to all their dues: tribute to whom tribute is due; custom to whom custom; fear to whom fear; honour to whom honour. Owe no man anything, but to love one another; for he that loveth another hath fulfilled the law." If a person suspects he has become the victim of a tax scam, this should be reported to state regulators, the Attorney General or the Federal Trade Commission.

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