IRS Debt Settlement: How it Works

There's a few ways to work out a debt settlement with the IRS. Knowing how is the first step in the process as IRS agents can try to get you to pay more than you can actually afford every month. Being informed before you start talking to the IRS will help you with getting a settlement that works for you, not the IRS.

The Five Tax Settlements Offered

There are only five types of debt settlements offered by the IRS. No other internal options are available.

Installment agreement

You can pay off your balance due in installments as long as it's under $10,000. You must also be able to pay the entire balance, which will include penalties and interest, within three years of initiating the agreement. The IRS cannot deny you the plan as long as you can meet the two criteria.

Be sure that you're current on all of your tax returns. If you are not, you will not be able to enter into the installment plan. File all missing years in order to be in compliance.

Offer In Compromise

If you are seeking to lessen the amount you owe, consider the offer in compromise. The decision to accept is up to the IRS. Acceptance is contingent on the IRS deciding that they cannot collect the entire amount or there is some question as to the validity of the amount owed. They can reject the offer if they do feel that you can pay the entire amount owed.

When the IRS accepts your offer, they will hold you to a set of rules. If you do not follow these rules, they can revoke the settlement and make you pay in full.

You are agreeing to pay the amount made in the offer.
Tax returns for the next five years will be filed on time. If you cannot file by April 15th, you must file for an extension to keep your offer valid.
Any refunds and credits you may receive for the next calendar tax year will be taken by the IRS for payment towards the settlement.

Not Currently Collectible

The IRS agrees that you are a non-collectible debt and will not pursue you for the next year for payment. Statements will be sent by the IRS which is required by law. The clock starts running on the 10 year statute of limitations for collecting tax debt during the time you are not collectible.

Partial payment installment agreement

An agreement is entered into with the IRS to make monthly installment payments towards the debt. In a bit of a twist, the payments do not go towards paying off the entire amount. Instead, at the end of the plan, the amount left over is forgiven. All of the terms of the agreement must be adhered to in order to ensure successful completion.

Bankruptcy

Only certain types of tax debts can be discharged through bankruptcy. The debts must meet certain criteria in order to be eligible. If your debts do not meet them then bankruptcy is not an option.

Hiring a Debt Settlement Lawyer

It's best to hire a lawyer who's proficient with tax debts. They're going to have the knowledge of all of the payment plans available and which works best for your situation. A legal representative can act as a form of armor for you, protecting you from getting hung up on your payments by the IRS.

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