There are various ways to settle your IRS tax debt. The options open to taxpayers are putting in a request for a monthly payment plan, submitting an offer in compromise, or seeking bankruptcy protection. You can also declare yourself not currently collectible by the IRS under certain circumstances. It is best to seek the services of a tax professional that can help you as an individuals or businesses to evaluate all available options for dealing with tax debts. Tax professionals who help you settle your IRS debt prepare a financial statement based on your unique financial situation. Thereby, they can determine which tax debt strategies are most suitable for you..
A tax professional examines your ability to pay and may recommend an offer in compromise program if you cannot afford to pay your tax debts in full. To do this, they first examine your monthly disposable income. If they deem that there is enough disposable income available, they will generally recommend that you set up an installment agreement or a partial-pay installment agreement. In case you are generating enough income to cover expenses and are actually breaking even, a tax professional may recommend an offer in compromise. However, the only way to settle your IRS debt in a situation where you spend a lot of money on expenses that the IRS does not allow may be to consider bankruptcy as an alternative.
To determine whether an Offer in Compromise will be successful, the tax professional establishes whether you are in compliance and have the ability to pay and to borrow. The IRS may not agree to an Offer in Compromise if you have not been complying with the applicable tax laws. To illustrate - you must be current on estimated tax payments or federal income tax withholding. You should be making payroll tax deposits on time, too, and the IRS expects you to have filed all tax returns. The Reasonable Collection Potential parameters govern your ability to pay and to borrow.
Most tax professionals prefer that a client establish an installment agreement or an offer in compromise. These are essentially contracts between you and the IRS. As long you fulfill the terms of the contracts, the IRS will not bother you. You can also opt for a partial-pay installment agreement wherein you make monthly payments. In this arrangement you end up paying less than the full amount owed. These agreements are usually easier to obtain than an offer in compromise. However, they differ from an offer or a full-pay installment agreement because the IRS may choose to re-evaluate the terms of a partial-pay installment agreement every two years. This means that if the IRS assumes that you can afford to make bigger payments, you may have to renegotiate the partial-pay installment agreement. You can request re-evaluation at any time if you find that your circumstances have changed to an extent that you can no longer make the agreed upon payment.
To request for a partial-pay installment agreement, you need to submit a written request for a partial-pay installment agreement to the IRS Revenue Officer whom the IRS has assigned to your case. You can use the Automated Collection System unit handling your account for this purpose, too. Should you elect to set up a partial-pay installment agreement before either of these two IRS interactions, you can submit a request to the Service Center where you file your tax returns. You will also need to submit a Collection Information Statement (IRS Form 433A) just as you must in an offer in compromise. This effectively means that you need to have all the documentation that an Offer in Compromise requires. This includes three months of bank statements.
