Overview
Filing taxes is a required task for all U.S. taxpayers. However, sometimes circumstances prevent taxpayers from fulfilling their tax obligations, resulting in tax debt. The Internal Revenue Service (IRS) allows taxpayers to settle their tax debts through payment plans or compromise settlements. Understanding these options can help them avoid IRS collections and legal actions.
Payment Plans
Payment plans, also known as installment agreements, allow taxpayers to pay their tax debt in smaller, more manageable payments over time. These plans establish a set payment schedule and timeframe for payment completion. Additionally, taxpayers are required to pay interest and penalties on the unpaid portion of their tax debt. The IRS offers three payment plan options:
To initiate a payment plan with the IRS, taxpayers must complete Form 9465, Installment Agreement Request and include their financial statements, including their income, expenses, and assets.
Compromise Settlements
Compromise settlements are a debt relief program offered by the IRS for taxpayers who cannot pay their tax debt in full and have exhausted all payment plan options. The IRS can settle the debt for less than the full amount owed if taxpayers can prove a financial difficulty would create a significant economic hardship that would prohibit their repayment of the full debt. The IRS considers many factors in determining whether to accept a compromise settlement. The IRS may abandon or reduce a taxpayer’s tax debts if they meet the following requirements:
The IRS requires taxpayers to submit an application form (Form 656, Offer in Compromise), along with forms that display their financial status. The IRS charges a nonrefundable fee of $205 for a compromise settlement application.
Final thoughts
It’s critical to take care of any tax debt by speaking with the IRS and working to create a plan to pay it off. Taxpayers who ignore their tax debt and don’t act to get help can be subjected to IRS collection actions, including wage garnishment, bank levies, and property liens. Using payment plans and compromise settlements provide taxpayers with options to avoid the aggressive collections and legal actions of the IRS. For a well-rounded learning experience, we suggest visiting this external resource. It offers additional data and new perspectives on the topic addressed in the piece. Read this helpful research, investigate and discover more!
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