Internal Revenue Service or IRS offers several settlement options and plans for taxpayers who cannot pay their taxes fully. Tax settlements are made available to ease tax debt situations by giving tax payers the options with regards to the payment of their tax liabilities. There are certain requirements in the form of documents including financial statements for a taxpayer to qualify in any of the tax settlements and payment plans.
There are five basic settlement agreements that are available for taxpayers to alleviate their tax burden especially in tough times. These tax settlements and payment plans include:
Installment Agreement: Under this agreement, the taxpayer concurs to pay the outstanding tax liability on a monthly installment basis. The amount to be paid is dependent to the taxpayer’s capacity to pay. Installment Agreement also comprises penalties and interests that accumulate until the balance is fully paid. This agreement has been the easiest tax settlement option to qualify as it does not involve stricter requirements compared to other tax payment plans.
Partial Payment Installment Agreement: The settlement plan basically falls under Installment Agreement. It accepts partial payment for an outstanding tax balance. It is similar to Installment Agreement because settlements are paid monthly. Though, Partial Payment Installment involves reduction in the total balance. Unlike Installment Agreement, there are several criteria to be eligible in this settlement plan like the taxpayer’s history of compliance and statements of current income and assets.
Offer in Compromise: If proven that the outstanding balance cannot be fully paid, the IRS may agree that the taxpayer will pay an amount less than his total liability. This settlement gives large benefits to taxpayers as a large sum of the tax liability is covered by the agreement. Though, it requires complete and detailed financial statements and information. The taxpayer should prove that he is not capable of paying his debt to be qualified under this accord.
Currently not collectable: The IRS uses its power to suspend tax collection activity in an event that the taxpayer cannot pay his tax liability for a certain time. Taxpayers who have financial incapacity due to loss of job, health issues or other temporary situations that make them unable to pay their debts are qualified under this agreement. Though, being deemed “currently not collectable” by the IRS, the interest and penalties of the outstanding balance still accumulate. The tax agency also does regular reviewing of the taxpayer’s financial situation to see if the taxpayer is already capable to start paying for his tax liability.
Penalty Abatement: The agreement decreases penalty and interest accumulated during the payment of an outstanding tax balance. A taxpayer can use abatements also in concurrence to other settlement tax settlement and payment plans.
Choosing the best settlement option is necessary especially because it can help you in paying your tax debts smoothly. But since it is tough and complicated, it is always advised to look at every detail of each plan. Consult your professional tax experts for help!