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IRS tax relief - How to settle IRS debt or pay it off in installments

If you've accumulated debt on IRS tax, you may seek help from tax relief companies. Such companies offer you a free consultation wherein tax experts/attorneys analyze your financial situation and tax debt based on which they negotiate a settlement or a repayment plan with the IRS.

How do tax debt relief companies help you?

Here's how tax relief companies (IRS tax debt settlement help companies) can help resolve your tax payment problems.

IRS tax debt settlement help - Negotiating an Offer in Compromise

This is an agreement between you (the taxpayer) and the IRS, as per which you're allowed to settle IRS debt for less than what you owe. The criteria for IRS debt settlement or Offer in Compromise program are given below:

Amount payable is equal to or greater than RCP:

You can't settle IRS debt unless the amount you offer as settlement equals to or exceeds the Reasonable Collection Potential or RCP. The RCP is a measure of your ability to pay off tax dues. It is evaluated by determining the value of your assets like real property, banks accounts, and future income less the amount required for your living expenses.

Not filed bankruptcy:

You must not be involved in an open bankruptcy case.

Requirements for Offer in Compromise agreement

As an individual taxpayer, you need to send in the following payments/document along with your request for Offer in Compromise.

  • Pay $150 application fee or send in signed Form 656-A
  • Pay lump sum amount worth 20% of what you owe or send in signed Form 656-A
  • Submit the first installment or signed Form 656-A
How to pay through Offer in Compromise

The Offer in compromise program provides you with tax debt relief through 3 payment options as mentioned below:

  1. Lump sum cash offer wherein the dues are paid in 5 or fewer installments.
  2. Periodic payments to clear dues within 2 years of the date when IRS receives your offer.
  3. Deferred periodic payments to repay dues within the remaining statutory period for collecting tax.

However, individuals whose earnings fall at or below IRS Low Income Guidelines need not pay the application fee.

Tax relief companies help to dismiss penalties

A consultant associated with a tax relief company can negotiate with the IRS and reduce or waive off penalty charges added to your dues. Under the following conditions, the IRS may grant an Abatement of Penalty and forgive some of your penalty charges.

Practical cause: You couldn't file the returns due to death in family or because of serious illness or because you didn't have enough knowledge about the tax rules.
Unfortunate hardship: You have been through hardship such as getting wrong advice from a tax professional, facing natural disasters, problem in filing taxes for the first time, being unemployed for a long time, etc.
Error on part of the IRS: The IRS may have made a mistake in processing your claim or it has given you wrong advice on how to file your tax returns.
IRS debt relief companies negotiate to release garnishment

When the IRS doesn't collect back taxes for a long period of time, it is likely that it may issue a wage garnishment order. A wage garnishment affects your credit and brings down your score by several points. Hence, it is essential to negotiate and have the wage garnishment released. This is where IRS debt relief (tax debt relief) companies can help you. They negotiate with the IRS such that it allows you to settle the taxes you owe. IRS tax debt settlement gives you tax relief faster and helps you get rid of wage garnishment.

Companies can help remove liens and tax levies

The IRS debt settlement companies negotiate with the IRS so that you can settle dues and get rid of tax lien placed on your property. IRS tax debt settlement helps you from getting hit with tax levies through which the IRS can seize your bank accounts, your car, home and other assets in order recover the amount you owe. However, the IRS sends you a notice giving you 30 days time for action before they issue a tax levy.

Tax relief companies negotiate the right installment plan

IRS tax relief companies can negotiate any of the 3 installment agreements as given below.

1. Guaranteed Installment Agreement
The IRS may approve this installment payment plan if your debt amount is $10,000 or less and you satisfy the following criteria:
  • You haven't filed late or paid your taxes late for past 5 years.
  • You've already filed your tax returns for the current year.
  • Monthly installments will help to clear your dues within 3 years.
  • You agree to file and pay your taxes on time for the future tax years.
  • You didn't sign an installment agreement for past 5 years.

Once you go for a Guaranteed Installment Agreement, you avoid getting hit with a federal tax lien which can otherwise trash your credit score. The minimum monthly payment you need to pay the IRS equals the amount you owe (along with penalty and interest charges) divided by 30.

2. Streamlined Installment Agreement
When you owe $25,000 or less in back taxes, the IRS may offer you a Streamlined Installment Agreement. The eligibility criteria are:
  • You have filed your tax returns for the current year.
  • You agree to file your returns right on time.
  • You agree to pay your taxes on time.
  • You promise to pay your dues within 5 years or less.

The minimum payment accepted by the IRS will be equal to your outstanding tax dues (including penalty and interest) divided by 50. When you're paying dues under this plan, the IRS won't file a federal tax lien.
3. Partial Payment Installment Agreement
If you can't afford the minimum payment on a Guaranteed or Streamlined Installment Agreement, a Partial Payment Installment Agreement may work for you. Here, the monthly installment depends on how much you can afford to pay after considering your daily living expenses.

Unlike the other 2 plans, a Partial Payment Installment Agreement allows you a long repayment period. During this period the IRS may file a federal tax lien to protect its interest from other creditors to whom you may owe money. Unlike the other payment plans, the IRS requires you to fill out a financial statement form (Form 433-F) wherein you report your average income and living expenses for past 3 years. The IRS re-evaluates the terms of the payment agreement in every 2 years to find out if you can pay more and get tax relief faster. This is not applicable for the Guaranteed or Streamlined Installment Agreement.

What should you do if you don't qualify for installment plans?

If you owe more than $25,000 or you need a repayment term longer than 5 years or if you don't qualify for any of the payment plans offered by the IRS, you may have to negotiate an installment agreement on your own. You need to fill out a financial statement form (Form 433-F) so as to inform the IRS about how much you can afford to pay each month.

Alternatively, you can go for IRS debt consolidation (tax debt consolidation). This can be done by taking out an unsecured consolidation loan in order to repay your dues with a lump sum payment. This way you can get IRS tax relief faster and avoid being charged with interest and penalty charges.

Whether you settle your tax dues or go for an installment agreement, tax relief companies can negotiate with the IRS and make things easier for you. These companies help you through the entire process of filing out forms and sending your requests for IRS tax debt settlement or installment agreement. They analyze your financial situation and suggest the right option which can provide you with relief from tax debt.

How to Resolve IRS Tax Debt

For many people, tax season is a dreaded time of year and dealing with the IRS is even more stressful. The good news though, is that if you find yourself owing money to the IRS, you can easily resolve your debt. Read on below and find out what options you have to get out of tax debt today.

First Things First

First of all, if you find yourself in debt with the IRS, you need to double-check your original income tax return. In some cases, you may have simply overlooked some deductions. If this is the case, you can simply amend your return, which will reduce the amount of money you owe.

After you have reviewed your return, you need to decide whether you want to handle the debt on your own or hire the help of a tax professional. Typically, if you owe more than $10,000, you should hire a professional. However, if you choose to handle it on your own, you will need to determine a tax debt plan.

Installment Agreements

One way to resolve your IRS tax debt is by agreeing to a monthly installment plan. However, before you request an installment plan, be sure that you have filed all of the required tax forms. You should also determine just exactly how much you can afford to pay each month.

There are many ways to request a monthly installment agreement. If you owe less than $50,000, you can apply online, by phone or by mailing Form 9465 (Installment Agreement Request) to the IRS. If you owe more than $50,000, you must mail your request along with Form 433-F (Collection Information Statement).

Temporary Delays

If, after reviewing your situation, the IRS determines that you cannot pay any of your tax debt at the time being, they may delay any collection efforts until your financial situation improves. However, penalties and interest charges will continue to build up until your debt is resolved.

Offer in Compromise

In some cases, the IRS may grant you with an Offer in Compromise, which allows you to resolve your debt for less than you actually owe. This is a great option for people who foresee long-term financial hardships. To qualify for an Offer in Compromise, you must be current with all payment and filing requirements and cannot be involved in an open bankruptcy proceeding.

You can obtain all of the forms you need to apply for an Offer in Compromise within the Form 656-B booklet. There is a $150 application fee (as of 2013), which is non-refundable, and you will be required to make an initial payment based on the option you choose. However, if you meet the IRS' Low Income Certification guidelines, the application fee and initial payment may be waived.

Other Ways to Resolve IRS Tax Debt:

These are the most common and best ways to resolve IRS tax debt. Nevertheless, you do have additional options. Other options you may wish to consider include taking a cash advance on your credit card, taking out a bank loan or utilizing your equity in real estate.

You may also consider borrowing against your 401(k) plan, borrowing against your life insurance policy or filing bankruptcy. Before choosing any of these options though, be sure to weigh the pros and cons of each. Additionally, make sure that the method you choose will suit your unique situation.