October 18, 2011 by msquaredlaw
Settlement of Tax Liabilities
Paying your tax debt immediately is usually the best option. Full payment of your tax liability will avoid additional penalties and eliminate the interest that accrues on your tax debt. Wherever possible, find sources of financing other than the IRS to pay your tax debt in full – it will usually be the less expensive option.
Nonetheless, the IRS recognizes that sometimes taxpayers are unable to pay all of the tax they owe immediately. If you are unable to pay part or all of your taxes, you may be able to negotiate payment arrangements with the IRS.
Extension of Time to Pay.
You may be eligible for a short extension of time to pay of up to 120 days. If you believe you will be able to pay your taxes in full within the extended timeframe, this may be the best option for you.
If you are unable pay your tax debt in full within 120 days, an installment agreement may be a reasonable payment option. Installment agreements allow for the full payment of the tax debt in smaller amounts during a period of time.
Offer in Compromise.
Some taxpayers are able to settle their tax bill for less than the amount they owe by submitting an offer in compromise. However, the criteria for accepting an offer are strict and the IRS will consider your unique set of facts and circumstances including your ability to pay, your income, your expenses and your asset equity. Don’t be conned into going with some scam artist that promises to settle your tax bill for “pennies on the dollar” by applying for an offer in compromise. If you don’t meet the qualifications, they are just duping you out of your money. Educate yourself on the requirements and do your due diligence on any tax professional you’re considering hiring.
If you do not have the financial resources to pay your tax liabilities in full or in part, an installment agreement or an offer in compromise may not be reasonable. If this is the case, you may be able to work with the IRS to obtain a determination that places you in a “non-collectible status.” It may be possible to defer payment of tax liabilities for an extended period of time based on your unique financial situation. All collection actions will then cease, and you will not be pressured to pay your tax bill at this time.
We will further discuss Installment Agreements and Offers in Compromise in a future blog post. If you would like to discuss your tax debt relief options with us, please contact us.