Tax Settlement
Tax Settlement
A tax settlement is an arrangement between the taxpayer and the IRS, or state taxing authorities, that is acceptable to the indebted parties without placing the taxpayer in a hardship financial position. As part of the agreed settlement, the taxpayer is able to dispose of an outstanding tax debt for less than the amount owed. Taxation agencies, federal and state, allow this type of tax settlement when there are extenuating circumstances that prevent the full debt from being paid in full by the taxpayer. Current tax regulations, along with the circumstances of the taxpayer, open the door to a plethora of possible solutions that can satisfy the needs of both sides of the taxation coin. Taxation authorities are, quite often, willing to explore individual situations to determine if there is a middle ground that cures the problem for both the tax authority and the taxpayer.
One of the main reasons that tax settlements work for both the tax agency and the taxpayer is that it is simply good business to come to good resolutions quickly. It is expensive for the taxpayer to owe taxes, interest and penalties to the IRS, or state tax agency, and it is also expensive for the tax collector to pursue the collection of delinquent taxes. Collection expenses are able to be added on to the taxpayer debt however, it is not always collectible in the end. Attempting to negotiate a tax settlement, and meeting certain qualifications, benefits the taxpayer in that the tax debt will, ultimately, be greatly reduced. It also benefits the IRS, or other tax agency, in that they don’t need to expend a substantial amount of money on lawyers, accountants, agents, courts, etc. in their attempt to recover delinquent taxes.
A tax settlement amount may be determined and offered quickly. A portion of the size of the deduction that may be accepted can depend on the ability to pay in a lump sum payment or through an installment agreement. A single payment that the taxpayer can afford without causing legal hardship brings a larger possible discount along with it. The “let’s just find a way to get this over with now” mentality can play a huge part in determining a lump sum tax settlement. On the other hand, many instances call for a payment of the entire balance within a specific period of time. The upside of this type of tax settlement is that a tax debt can be broken down into affordable monthly payments for the taxpayer – and the penalties and interest are usually removed from the tax debt. The installment agreement can usually be negotiated to be based on the principle amount due only. Once the settlement has been reached by both sides, the taxpayer will be considered in good standing with the IRS for the tax year(s) that the settlement covers – as long as the taxpayer fulfills the tax settlement agreement as presented and accepted.
The IRS offers settlements to taxpayers who are delinquent during a period of struggle in their lives and have valid reasons for non-payment of their taxes. If the taxpayer is undergoing financial hardship, the IRS will usually be open to some sort of a settlement of the tax debt. Delaying the inevitable should not be a tactic that the taxpayer should take. Beginning to work on the problem at hand immediately will prevent the wound from deepening. Wage garnishment and levies on property and finances can become the results of taxpayers who do not advocate their position. The IRS will continue to levy penalties and charge interest on unpaid tax balances until they are settled. The longer you leave a tax problem, the deeper the hole will get. Interestingly enough, balances of less than $10,000.00 can be set up on the IRS website without having to provide any financial data. The delinquent amount is merely set up into an Installment Plan on the website and the taxpayer decides on the amount of time (usually up to 72 months) to determine the amount of the payments that can be successfully, and consistently, paid until the tax debt is satisfied in full.