What to Avoid In a Tax Debt Settlement

Income taxes are a fact of life for anyone living in the United States. Unfortunately, small errors in your income tax filings or withholdings can compound drastically over time, and if not caught or dealt with, can result in massive back tax fines and liabilities. This presents a greater problem – how to pay these tax debts back? In many cases in this economy, individuals with back tax debt liability are turning to tax debt settlement as a means of negotiating a smaller repayment amount over a longer period of time in order to avoid additional liabilities or bankruptcy.

If you are considering a tax debt settlement plan, there are some things you should look to avoid, so that you do not fall prey to scams or programs which will cost you more money in the long run.

One thing to avoid in a tax debt settlement is taking an offer without first consulting a tax lawyer or legal professional.

You will want to make sure that the amount you are being asked to pay is legitimate. If some of the fees can be reversed, deemed incorrect, or forgiven by the IRS prior to the debt settlement, you will want to do this first, as accepting a settlement means that you have agreed that the amount you need to pay is legitimate. Also, tax debts are not typically allowed to be claimed in bankruptcy proceedings, so once you have agreed on this number, you will have no way out of paying it if your financial situation worsens down the road.

Another income tax debt settlement trap to avoid is large companies that have arisen in response to the financial crisis and that are making very aggressive claims about their effectiveness and potential ability to settle your debt for “pennies on the dollar.”

Many of these companies are not true financial or tax professionals, and merely negotiate with the IRS in a manner that will not result in the best possible outcome for you. These companies often also tack on additional fees and costs that they spread out through the terms of the debt settlement program, and working with the companies can thus actually end up costing you much more money than if you would have settled by using a tax professional such as a lawyer.

One final tax debt settlement thing to avoid is called an “Offer in Compromise.”

Offers in compromise, or OICs, are settlement agreements where the IRS agrees to take less money than they are owed, in hopes of recovering at least some of the money that they are owed over a longer period of time. These agreements require a full financial disclosure to the IRS, and can drag on for many years.

Getting Help

Before settling tax debt, make sure to consult with an experienced attorney who can make sure you get the best and most fair settlement for your situation.

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