Every taxpayer has a unique tax debt situation, and every IRS tax settlement program is different. This article will review several settlement options to help you figure out which one is right for you.
Option One: Reduced Penalties
The good: The IRS uses penalties to scare taxpayers into paying early, but many times they have a legitimate reason for not paying on time. When you qualify for fine reduction, all or part of the fines you owe will be removed.
The bad: Penalty abatement will only remove the penalties added to the initial base amount of tax due. Also, the IRS requires that you have a good reason for requesting the reduction.
Option Two: Audit Reconsideration
The good: Since the audit reconsideration option has nothing to do with your current financial situation, the IRS will not require you to complete a financial statement (Form 433-F).
The bad: This option only works if you have evidence to support that you have a strong reason for not showing up for the tax audit. It is a time consuming process and you may also need to appeal.
Option Three: Installation Agreement
The good: A full installment agreement is fairly easy to obtain, where you can pay the tax due in monthly payments. Once paid and released, the IRS allows the tax lien to be removed.
The bad: To facilitate approval, the tax money owed must be $25,000 or less. Otherwise, Form 433-F is needed. Additionally, interest can continue to increase during the time of payment and, along with IRS penalties, the interest rate can reach 9-12% per year.
Option four: partial payment
The good: Under the Partial Payment Installment Agreement (PPIA) plan, you are allowed to pay an affordable amount in monthly installments. There will be an overall reduction in tax debt because once the collection period (or CSED) ends, all remaining debt is gone!
The bad: Full financial disclosure is required, and the IRS will evaluate your financial situation periodically. If they find you can pay more, they will ask you to do so. Your tax refund can be intercepted by the IRS to pay debts.
Option Five: Currently Not Collectible (CNC)
The good: This is even better than the Partial Installment Agreement, since you will pay nothing to the IRS. While in non-collectible status, a statutory 10-year period could pass and the entire tax liability would expire.
The bad: The IRS will closely monitor your financial situation to see if it has improved. There will be no liens, but you will still be subject to federal tax liens on your property.
Option Six: Offer in Compromise (OIC)
The good: An OIC will substantially reduce your tax liability and will also suspend collection activities. It will have a positive impact on credit ratings.
The bad: This is definitely the most difficult IRS tax settlement option to qualify for. To be accepted, the offer you make must be a good offer to the IRS. You will lose all tax refunds, including interest, for that period. The taxpayer must be in tax compliance with the IRS code related to paying taxes and filing returns for 5 years. Otherwise, the IRS will reinstate the full amount of the tax liability.
Option Seven: Chapter 7 Bankruptcy
The good: Old income tax debts can be discharged in Chapter Seven bankruptcy. The rules are simpler than other settlement options and you can get out of debt much faster.
The bad: Your credit score will drop dramatically. Payroll taxes can never be eliminated in bankruptcy. It will not delete any previously registered federal tax links..