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Why Would The IRS Settle My Tax Debt?

Sunday, May 22nd

Why Would the IRS Settle My Tax Debt?

There are few words in the English language which can evoke fear in Americans in quite the same way as "Internal Revenue Service" can.

Even law-abiding, annual tax filers cringe when they hear those words. The fear of being audited often is an irrational one, even for those who take creative liberties with their deductions.

But what happens to those who legitimately owe back taxes? What is the best way to handle their debt with the least amount of pain from the IRS?

According to the most recent figures, the IRS estimates that over 20 million Americans owe back taxes. There are numerous reasons for each and every case of back taxes being owed. For some, a tough economy has made it difficult to pay what is owed to a variety of creditors, not just the IRS. Unfortunately, the IRS has a job to do, and they are not swayed by excuses for failure to pay taxes.

The IRS has a number of options available at their disposal for collecting overdue taxes. Actions they are permitted to take include the seizure of assets, the placing of liens on a taxpayer's property, garnishing wages or claiming future tax refunds.

Prior to taking any action to recover overdue taxes, the IRS will send a notice to the taxpayer, outlining the full amount owed. It is required by federal law to itemize the full amount, indicating how much is the actual tax owed, how much is penalties for failure to pay and how much of it is interest.

Once that notice is issued, the taxpayer will have a set amount of time in which to pay the amount in full before the IRS will take one of the actions at its disposal to recover the funds.

So what do you do if you are among the 20 million Americans who owe back taxes?

There are a number of options available to taxpayers who find themselves in this predicament.

One of the most popular courses of action is for taxpayers to enter into what is known as an installment agreement with the IRS. Taxpayers who agree to an installment repayment plan are seen as being in compliance, and the IRS is less likely to take a harsher course of action to recover back taxes. The only downside to an installment plan is that interest continues to accrue on the total amount owed while taxpayers are making payments, similar to what happens when a person makes only the minimum payment on a full credit card balance.

Another option, which the IRS makes available on its own website, is what is known as an "offer in compromise".

This option allows taxpayers to settle their debt for less than the full amount that is owed if they can prove that paying in full would cause a financial hardship for them. Qualified candidates for this option must meet specific criteria as determined by the IRS, and must provide documentation supporting their ability to pay, income level, current expenses and asset equity.

Anyone who currently is in the process of bankruptcy does not qualify for this option.

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Tax Relief Company FAQ

Tax relief is a means of reducing what you owe to the IRS and state in back taxes. Your debts can be negotiated and payment plans may be established to help you pay it in a more manageable amount and timeframe.
You'll probably need to owe at least $10,000 in state and/or federal taxes to be eligible for tax relief. There usually aren't any other requirements.
You could work directly with the IRS to work out a 3-year payment plan, but that usually only applies if you've filed all of your previous years' tax returns and you owe less than $10,000 in taxes. Using a tax relief service eliminates the guesswork and walks you through the entire process from start to finish. Plus, you don't have the stress of meeting with the IRS: your representative at the tax relief company does all of that for you!
Most services offer a free initial consultation, to determine which of their plans (if any) are the right fit for your situation. Once you've chosen a tax relief strategy, the provider will probably charge up to 20% of what you saved in debt as a service fee, but that varies from one company to another.
Your representative will go to work on your behalf, using a variety of methods to work with the IRS and state taxing authority. These may include Offer in Compromise, Penalty Abatements, Tax Lien Subordination and more. Some services will assign you a dedicated representative who will keep you updated on your case's progress.
As you'd expect, it depends on the complexity of your situation. However, a general rule of thumb is between two and six months for a tax relief plan to be fully executed.
Some tax relief services offer their customers a satisfaction guarantee - but it's often a very small window of time compared with how long it takes to see a significant change in your tax debts. It's a good idea to look at the reputation of any service you're considering, to see what previous clients have said about the effectiveness, and reliability of the programs offered.
Most of them are. It's not difficult to find tax relief partners that have been helping consumers for decades. That being said, there are opportunistic scammers who would like nothing more than to convince you that they're legit and then take your money without offering any tax relief whatsoever. You should research the provider before signing on the dotted line, which includes looking up their rating from the Better Business Bureau.

Compare Tax Relief Companies

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  • Direct Tax Relief
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