| When it comes to settling IRS back taxes there are | | | | actually takes actions against individuals to collect. |
| many options. It is best that you learn all available | | | | Typically the IRS sends an original assessment letter |
| options and see what fits your individual situation the | | | | stating the amount of tax owed plus any interest and |
| best before setting up a plan of attack. Some | | | | penalties then it will send a series of four CP Letters |
| important factors to figure out prior to making your | | | | (CP1-4, as noted in upper right of letter). Typically once |
| decision of what back tax settlement method to use | | | | you start receiving these letters you have 4 to 6 |
| are your tax amount owed, amount you can afford to | | | | months before the IRS takes collection action if nothing |
| pay, the amount of assets (equity) you have, and if | | | | is done on your part. To delay the IRS and buy |
| you would be able to pay amount in full if you just had | | | | yourself more time all you have to do is write a letter |
| more time. Below are the 5 most common methods to | | | | back to the IRS in response to the assessment notice |
| settling back taxes. | | | | or CP notices and state that you cannot pay at the |
| Offer in Compromise | | | | current time and ask for a 45 day extension. If you still |
| An offer in compromise is the method that allows | | | | cannot pay by this time you can simply repeat the |
| individuals to settle IRS back taxes for less than the | | | | process to buy more time. Just know that once you |
| total amount originally owed. Whenever you hear the | | | | receive IRS notice CP-504, you will not have much |
| saying, "Settle for Pennies on the Dollar", this is the | | | | more time until they take collection actions against you. |
| method that is used. It shouldn't come to a surprise that | | | | Currently Not Collectible |
| this is the hardest settlement to reach with the IRS. | | | | This method doesn't really settle your back taxes, but |
| The IRS has strict requirements to qualify for an offer | | | | it puts a hold on collections. When you receive |
| in compromise. The purpose of an offer in | | | | currently not collectible status, the IRS will temporarily |
| compromise is to find a compromised amount that | | | | stop collection activities against you and they will |
| works for the tax payer and the IRS. What this means | | | | require that you submit an updated financial statement |
| is that the IRS will settle your amount for less money if | | | | every year to see if your situation has improved |
| you can show that it is not worth the time of the IRS | | | | enough for them to go after you and collect. One thing |
| to try to collect from you because it will cost them | | | | to keep in mind here is that the statute of limitations is |
| more to try to collect than the amount that they would | | | | still running and the IRS has 10 years to collect back |
| eventually end up collecting. An offer in compromise | | | | taxes from the year they were filed. If 10 years |
| would be a good method of settlement if your total | | | | passes and they have not collected, you no longer |
| equity you have in assets is worth less than the tax | | | | owe that amount. |
| amount owed. | | | | Tax Professional |
| Installment Agreement | | | | Tax professionals are many times the most efficient |
| An installment agreement is the most common method | | | | way to get the best settlement with the IRS. Tax |
| for individuals to settle their back taxes. With an | | | | professionals have the highest success rate for getting |
| installment agreement you will be required to pay | | | | offer in compromises settled and for the least amount |
| monthly payments towards the tax amount owed in a | | | | of money, have the best methods for setting up |
| period of less than 3 years. With an installment | | | | installment agreements that work best for individuals |
| agreement you will still have to pay interest on the | | | | that cannot pay, or finding other methods that would |
| amounts owed plus and any penalties you may have | | | | better suit the individuals for their particular situation. |
| received, so in the end up paying more than the original | | | | Most tax professionals will offer a free consultation to |
| tax amount owed. An installment agreement should be | | | | give you your options, likely outcomes, and cost. It is |
| used if payments cannot be made in full but you do | | | | best to talk to multiple tax professionals to find the one |
| have the ability to pay them off over time in smaller | | | | that you feel gives the best suggestions, you get along |
| monthly payments. | | | | with best, and gives you a reasonable price. |
| Delay the IRS | | | | Every year thousands of people settle their unpaid |
| If you just need more time to pay the total amount | | | | back taxes with the IRS. Tax laws only continue to get |
| due this can easily by done by using your | | | | more complex and this causes more people have |
| understanding of the IRS system to your advantage. | | | | problems with back taxes. Understanding your options |
| When the IRS realizes that you owe back taxes, they | | | | and taking action early is always the best to prevent |
| will begin their sending their automated notices. There | | | | more future penalties and interest. |
| are a series of letters that the IRS sends before it | | | | |