IRS Debt Settlement Help
If you owe taxes to the IRS, you are dealing with a serious collector. The IRS is determined and resourceful and has a wide variety of tools at its disposal to enforce the tax code. Options include placing a lien on property to placing a levy on financial accounts, garnishing wages and even criminal prosecution. Bankruptcy may not be much help; recent tax debts are not dischargeable in bankruptcy. However, the IRS is not unreasonable and will approve realistic payment plans and occasionally accept a settlement offer, called an "offer in compromise," if circumstances warrant.
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Taxpayers Advocate Service
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If you are experiencing significant hardship due to the tax collection process, or if you are not able to get your problem resolved through the normal IRS channels, you may consider contacting the Taxpayer Advocate Service. This is a quasi-independent body within the IRS made up of experienced agents that helps taxpayers when they are having difficulty with the IRS. In some cases, they may be able to bring a halt to collection actions. To contact them, file an IRS Form 911 or call their intake line at 877-777-4778.
Payment Arrangements
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If you have at least some income, you may be able to make payment arrangements with the IRS. The IRS will ask you to fill out a Collection Information Statement. This form, along with supporting documents, helps you and the IRS determine your basic expenses each month and aids you in calculating a reasonable payment plan. The IRS will approve payment plans or occasionally agree to a delay in the collections process until your financial situation improves. Any payment plans, however, must lead to the full payment of tax owed within the 10-year statute of limitations that begins when the tax is assessed. If you owe less than $25,000, set up a payment plan via the IRS website.
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Offers in Compromise
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The IRS will occasionally accept an offer to pay an amount less than the full amount owed. To be approved, there must be doubt as to whether you actually owe the tax, doubt about whether the IRS will be able to collect the tax, because the tax is greater than the sum of your assets and expected future income, or the IRS must be motivated to "promote effective tax administration." This last criteria is a catch-all that gives IRS agents the flexibility to address cases of severe hardship or other special situations. There is typically a $150 fee to file a request for an offer in compromise, though this is waived for very low income individuals. In most cases, any request for an offer in compromise must be accompanied by a 20 percent down payment on the amount offered.
Process
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To file an Offer in Compromise, fill out and submit an IRS Form 656 to the Internal Revenue Service, along with any supporting documentation, your 20 percent down payment on your offer and the $150 fee. You must also submit a copy of Form 433-A, Collection Information Statement for Wage-Earners, or Form 433-B, Collection Information Statement for Businesses. In some cases, you must submit both. You must be willing and able to complete any payments by the time the IRS's 10-year statute of limitations expires.
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