What Are the Major Tax Settlement Options and What Makes You Eligible?

June 28, 2012 by  Filed under: Taxes 

If you’ve underpaid or failed to pay your taxes for one or more years, you know how quickly tax debt can snowball. The IRS imposes hefty penalties and interest for late filing and late payment, and the longer you go without paying, the more those penalties add up. The good news is that if you meet certain criteria-in particular, if you can prove that you did not set out to defraud the IRS and do intend to pay what you owe-you may be able to negotiate a tax settlement. What are your tax settlement options? It depends on your specific circumstances. Talk to a tax expert such as a tax attorney or a CPA to get advice for your situation.

Offer in Compromise

A common but difficult-to-procure tax settlement, an offer in compromise allows you to propose an alternate sum to cover your tax debt. When you owe more than you can reasonably pay, an offer in compromise can be a good solution. The idea is that the IRS would rather receive less than what you currently owe than nothing at all. To secure an offer in compromise, you’ll need to show that you are currently attempting to pay quarterlies or are having taxes withheld, and that you do not have a pending bankruptcy case. You will also probably need the services of a tax specialist to negotiate with the IRS on your behalf. Because offers in compromise result in the IRS receiving significantly less from you than they’d like, they aren’t granted easily.

Installment Agreement

Sometimes as much as you’d like to pay your tax debt, you just can’t do it in one lump sum. That’s where an installment agreement comes in. This tax resolution strategy involves spreading your debt out into a series of smaller monthly payments. You must determine the largest monthly payment you can make and agree to relinquish all tax refunds for future years until the debt is paid off. If you owe less than $50,000, you can talk to your tax attorney or accountant about negotiating an installment agreement. Then you’ll have the assurance that if you just stick to the schedule, the looming debt will eventually go away.

Penalty Abatement

If you have legitimate reasons for failing to pay your taxes on time and in full, and a tax attorney or CPA can prove that to the IRS, you may be eligible for penalty abatement. Acceptable reasons might include a death in the family, a disaster such as a flood or fire destroying your home or financial records, a lengthy illness, or being in prison or a rehabilitation facility at the time of tax filing. If your request for penalty abatement is approved, the IRS will absolve you of the late fines related to the tax debt. Bear in mind that you will have to pay the debt itself within a specified time frame, and interest will likely continue to accrue.

Other Tax Settlements

If the IRS has already taken drastic steps to make you pay what you owe, your first step might be to appeal for removal of that tax penalty or wage garnishment. For instance, if the IRS is deducting a sum from your paycheck each month to put toward your tax debt, but the decreased pay is resulting in financial hardship for you and your family, you can apply for wage garnishment cessation. If the IRS has placed a lien or levy on your property, you can apply for those to be removed. Then, you can work with the IRS to find a solution-such as an offer in compromise or an installment plan-that works for everyone.

A senior Internet marketing strategist with the SEO firm Prospect Genius, Dason Jocko writes about financial planning and tax resolution.

Article Source:
http://EzineArticles.com/?expert=Dason_Jocko

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