By
Manuel Davis Jr.
When it comes to settling IRS
back taxes there are many options.
It is best that you learn all available
options and see what fits your individual
situation the best before setting
up a plan of attack. Some important
factors to figure out prior to making
your decision of what back tax settlement
method to use are your tax amount
owed, amount you can afford to pay,
the amount of assets (equity) you
have, and if you would be able to
pay amount in full if you just had
more time. Below are the 5 most
common methods to settling back
taxes.
Offer in Compromise
An
is the method
that allows individuals to settle
IRS back taxes for less than the
total amount originally owed. Whenever
you hear the saying, "Settle for
Pennies on the Dollar", this is
the method that is used. It shouldn't
come to a surprise that this is
the hardest settlement to reach
with the IRS. The IRS has strict
requirements to qualify for an offer
in compromise. The purpose of an
offer in compromise is to find a
compromised amount that works for
the tax payer and the IRS. What
this means is that the IRS will
settle your amount for less money
if you can show that it is not worth
the time of the IRS to try to collect
from you because it will cost them
more to try to collect than the
amount that they would eventually
end up collecting. An offer in compromise
would be a good method of settlement
if your total equity you have in
assets is worth less than the tax
amount owed.
Installment Agreement
An installment agreement is the
most common method for individuals
to settle their back taxes. With
an installment agreement you will
be required to pay monthly payments
towards the tax amount owed in a
period of less than 3 years. With
an installment agreement you will
still have to pay interest on the
amounts owed plus and any penalties
you may have received, so in the
end up paying more than the original
tax amount owed. An installment
agreement should be used if payments
cannot be made in full but you do
have the ability to pay them off
over time in smaller monthly payments.
Delay the IRS
If you just need more time to pay
the total amount due this can easily
by done by using your understanding
of the IRS system to your advantage.
When the IRS realizes that you owe
back taxes, they will begin their
sending their automated notices.
There are a series of letters that
the IRS sends before it actually
takes actions against individuals
to collect. Typically the IRS sends
an original assessment letter stating
the amount of tax owed plus any
interest and penalties then it will
send a series of four CP Letters
(CP1-4, as noted in upper right
of letter). Typically once you start
receiving these letters you have
4 to 6 months before the IRS takes
collection action if nothing is
done on your part. To delay the
IRS and buy yourself more time all
you have to do is write a letter
back to the IRS in response to the
assessment notice or CP notices
and state that you cannot pay at
the current time and ask for a 45
day extension. If you still cannot
pay by this time you can simply
repeat the process to buy more time.
Just know that once you receive
IRS notice CP-504, you will not
have much more time until they take
collection actions against you.
Currently Not Collectible
This method doesn't really settle
your back taxes, but it puts a hold
on collections. When you receive
currently not collectible status,
the IRS will temporarily stop collection
activities against you and they
will require that you submit an
updated financial statement every
year to see if your situation has
improved enough for them to go after
you and collect. One thing to keep
in mind here is that the
statute
of limitations is still running
and the IRS has 10 years to collect
back taxes from the year they were
filed. If 10 years passes and they
have not collected, you no longer
owe that amount.
Tax Professional
Tax professionals are many times
the most efficient way to get the
best settlement with the IRS. Tax
professionals have the highest success
rate for getting offer in compromises
settled and for the least amount
of money, have the best methods
for setting up installment agreements
that work best for individuals that
cannot pay, or finding other methods
that would better suit the individuals
for their particular situation.
Most tax professionals will offer
a free consultation to give you
your options, likely outcomes, and
cost. It is best to talk to multiple
tax professionals to find the one
that you feel gives the best suggestions,
you get along with best, and gives
you a reasonable price.
Every year thousands of people
settle their unpaid back taxes with
the IRS. Tax laws only continue
to get more complex and this causes
more people have problems with back
taxes. Understanding your options
and taking action early is always
the best to prevent more future
penalties and interest.
To find more solutions for problems
with back taxes visit:
Back Taxes Help
BackTaxesHelp.com is a site dedicated
to helping people
settle back taxes by providing
all relevant information as well
as connections with tax specialists.
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