How to Settle Tax Debt with the IRS
Dealing with the IRS can be very intimidating. Tax laws are complicated and can be difficult to understand. If you owe back taxes, you can be subject to fines and penalties that grow month by month. The IRS even has the ability to garnish your wages or levy bank accounts. So, it is really important to deal with these problems quickly and not let them grow into something you can’t handle.
You can either choose to deal with your tax debts yourself, or hire a professional to help settle. The complexity of your case and amount you owe should determine which direction you take.
Making the decision to do it yourself or to hire a professional depends alot on how much you owe. If you have a minor problem, you should be able to file the appropriate forms and set up an installment plan or partial payment installment plan (at around 8-10% interest including fines and penalties). But if you owe $25,000+ it can be more complicated. A good tax attorney or CPA will know the ins and outs of tax law and should be able to save you more money in spite of their extra costs. They can help you decide if you want to protest the amount or try to negotiate a lower payment. If you try to settle, the IRS might not go for it. By going for the lower payment, you are admitting that you owe the original amount. So be careful if you chose that route.
Things you need to know if you want to “do it yourself”.
The easiest type of settlement that the IRS will enter into is an Installment Agreement. You agree to pay your taxes, penalties, and fines over a period of time. You can usually get a period of 3 years without too much trouble. But you need to have your taxes filed and current to be accepted for an installment agreement. You will end up paying more than you originally owed if you do an “IA” because of the interest and penalties add up until the debt is paid in full. If you owe less than $25,000 you can request a payment agreement online. You request will be processed in about a month.
If you have $25k or more in tax debt you will need to fill out Form 433F (Collection Information Statement Form). This form is used by the IRS to asses how much you can afford to pay. The IRS can accept this agreement or not. You also may write to the IRS to ask to be assigned a “Revenue Officer“. This can help because it can be much easier to deal with a live human being if you have alot of questions.
When you speak with a revenue officer, you will need to come up with a monthly payment you believe you can make. This payment plan will be occurring over a period of years, so you need to be sure that you can handle the payments. Do not propose to pay more that you can legitimately handle. Take into account your necessary expenses and minus that from your current income. Propose a figure that is reasonable, but also something you can afford. If you aren’t sure what you should pay, the IRS can help figure out how much you have left after your necessary living expenses.
What happens if your installment proposal rejected?
If you are rejected, you will receive a rejection letter. You have the right to file an appeal for 30 days after the rejection. Also you can call the IRS if is unclear why you were rejected and they will help you make any adjustments to your proposal. They might reject your plan if they think the expenses you’ve designated as necessary, aren’t that important. They also will reject your plan if you haven’t been truthful with them about your current financial situation.
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