Dealing with Tax Debt

IRS Tax Settlements

Tax debt can be a big burden for small business owners. Not paying taxes or underpaying taxes sometimes seems like the quick and easy answer to your cash flow problems. But back-interest charges and financial tax penalties quickly add up. If you've put yourself in a situation where you've got some hefty delinquent tax bills, it's times to see if an IRS tax settlement might be available.

Want to resolve IRS debt problems? Maybe you just received a Notice of Federal Tax Lien or a Notice of Levy. Maybe you are being inundated with other IRS notices for late taxes, interest and penalties.

Whatever the case is, if you've got IRS tax problems, you need IRS tax help. This article discusses ways to appeal IRS taxes and settle IRS tax debt.

OK, so you are in trouble with the IRS. That's a bad situation, but an even worse situation is to stay in trouble with the IRS. The faster you resolve tax problems, the faster you can get back to concentrating on growing your business.

Fortunately, the IRS has an Offer in Compromise program where you can settle your tax account for less than what you owe.

That's right. Negotiating with the IRS may be a viable option for you. Under certain conditions the IRS will settle unpaid accounts for less than the full amount of the balance due. This applies to all taxes including any interest, penalty or additional amount arising under IRS laws.

However, it's important that you view an Offer in Compromise as a method of last resort. According to the IRS, an Offer in Compromise may be considered only after other payment options have been exhausted.

If taxpayers are unable to pay their taxes in full, there are other payment options, such as monthly installment agreements, that must be explored before an Offer in Compromise can be submitted.

The IRS can settle tax debts if any of the following conditions exist:

  • Doubt as to Liability - Doubt exists that the assessed tax is correct.
  • Doubt as to Collectibility - Doubt exists that you could ever pay the full amount of tax owed.
  • Effective Tax Administration - There is no doubt the tax is correct, and no doubt that the amount owed could be collected, but an exceptional circumstance exists that allows the IRS to consider a tax settlement. To be eligible for a compromise on this basis, the taxpayer must demonstrate that collection of the tax would create an economic hardship or would be unfair and inequitable.

In order to be considered for an Offer in Compromise, a taxpayer must have met all of the following requirements:

  • Used the most current versions of Form 656, "Offer in Compromise" dated July 2004 (PDF) and Forms 433-A and 433-B, "Collection Information Statements," dated May 2001;
  • Submitted the $150 application fee, or Form 656-A, "Income Certification for Offer in Compromise Application Fee," with the Form 656;
  • Filed all required federal tax returns;
  • Filed and paid any required employment tax returns on time for the two quarters prior to filing the OIC, and is current with deposits for the quarter in which the offer in compromise was submitted; and
  • Is not a debtor in a bankruptcy case.

Ready to learn more about IRS tax appeals and settling IRS tax debts?

Take some time to learn about the IRS's Fast Track Mediation program. This program gives small businesses, self-employed taxpayers and the IRS the opportunity to mediate disputes through an IRS appeals officer, who acts as a neutral party. In this program, most tax disputes are resolved within 40 days compared to several months though the regular appeal process.

You should also read Publication 594, The IRS Collection Process. This document provides helpful information on the options available to taxpayers. Taxpayers also should review Form 656, Offer In Compromise, or Form 9465, Installment Agreement Request, to determine if they qualify for either payment program. Form 656 provides detailed instructions for submitting an offer and includes all of the necessary financial forms.

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We greatly appreciate any advice you can provide on this topic. Please contribute your insights on this topic so others can benefit.

  • John Salan posted on 7/1/2009
    John Salan
    You may also want to consider a Partial Payment Installment Agreement because acceptance rates for PPIA's are much higher than with an Offer In Compromise. A PPIA is when you are able to pay the IRS over time, but at the end of you repayment term (5 years typically) you will not have satisfied the total outstanding balance.

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