Americans struggling with tax debt often assume that the Internal Revenue Service is not an entity with which taxpayers may address their concerns and bargain. This could not be farther from the truth, however. Although the IRS does engage in aggressive collection tactics, it is an attentive listener that heeds taxpayers’ pleas and grievances as well as a cooperative negotiating partner. In fact, the IRS has a duty to work out a reasonable payment plan with individuals confronted with tax debt.
In view of the IRS’ wide arsenal of penalties, ranging from garnishment of wages to liens and levies, delinquent taxpayers are seizing the opportunity to set up a payment plan with the IRS. A number of options are available for paying off IRS tax debt, and they include the following:
Taxpayers could take out a loan to settle their tax debt. Since the rates that the IRS charges for late payment are much higher than bank interest rates, consumers will be able to pay off their debt much quicker and save money by borrowing funds.
2. Temporary payment extensions
The IRS may offer a short-term payment extension to qualifying taxpayers. Upon being granted an extension, typically ranging from 10 to 120 days, taxpayers must meet their payment obligations. Debt may be paid off either in full or partially, and each payment made by taxpayers should constitute the highest sum they can afford to pay at that period in time.
3. Installment agreements
A third tax debt management strategy consists of forming an installment agreement to pay off the IRS tax debt in full through fixed monthly payments. Eligible individuals are those with a tax debt below $10,000; they will be allowed to repay their debt within three years. The process is simple: Applicants set forth the minimum monthly sum that they will be able to pay and the day of the month when they will make a payment. The proposal may either be accepted or modified by the IRS. Upon approval of the plan, taxpayers are required to comply with the terms of the agreement by making an IRS installment payment each month until the debt is paid in its entirety.
The IRS authorizes five kinds of payment plans: 1) streamlined installment agreements, 2) long-term installment agreements, 3) guaranteed installment agreements, 4) installment agreements on specified balance due accounts, and 5) in-business trust fund agreements.
4. Partial payment installment agreements
Taxpayers may negotiate long-term payment arrangements, such as partial payment installment agreements- which settle a tax debt for a lower dollar figure.
5. Offer in compromise
Pursuant to this agreement, taxpayers may pay off their tax debt for a lesser amount than what they owe, if it is impossible for them to pay off the tax debt in full. When the IRS finds it to be both in its best interest and in that of the taxpayer to accept less than the full payment, it allows him or her to pay simply the reasonable collection potential. To settle their IRS debt, taxpayers may either make short-term, periodic payments or pay a lump sum.
Finally, procedures for tax debt relief strategies, such as an offer in compromise, tend to be intricate in nature, thus necessitating some form of tax help. Taxpayers should enlist the services of qualified and experienced tax professionals, whether they be certified public accountants (CPAs), tax lawyers or enrolled agents, to guide them through the process by (1) preparing their IRS documents, (2) studying all of their options for tax debt resolution, (3) steering them through the complex IRS bureaucracy, (4) clearly presenting their case to the IRS for consideration, (4) negotiating effectively with the IRS and (5) achieving a favorable outcome.