When you owe a substantial amount of taxes to the IRS you need to work with them to resolve the issue. There are several options open to you, but the one that is best for you depends how much money is involved and your ability to repay the entire balance. In many cases the IRS is open to allowing the taxpayer to make a payment arrangement, but those who are not in a financial position to make substantial monthly payments to reduce the balance of taxes owed in a reasonable period of time may want to talk to the IRS, tax lawyer or third party mediator about negotiating a tax settlement.
If the IRS approves you for a tax settlement (officially called Offer in Compromise) you will not have to pay any more money than the amount you agree upon in the settlement. There is no guarantee you will be approved for a tax settlement; you must first prove to the IRS that you not have the financial resources to repay the taxes you owe on a monthly payment plan during your lifetime. If you feel you qualify for an Offer in Compromise, you have the option to work directly with the IRS, a tax lawyer or with a third party mediation agency that can negotiate on your behalf. One thing to keep in mind is working with the IRS is free while you will pay a fee, usually quite substantial, if you hire someone to represent your interests. It may be a good idea to save your money on those services unless you need the help at a later date.
Whether you work directly with the IRS or with a third party agency there are several steps that are involved in the process of negotiating a tax settlement.
- Assemble all your financial records
- Place a call to the IRS or a third party agency
- Meet with a representative of the IRS in order to determine where your needs are
- Reach a final agreement
- Start making payments based upon your agreement with the IRS
Do not assume you will be approved for a tax settlement just because you request it, but it is something you should consider before you try to borrow money to pay off your IRS debt. The unpaid taxes will never go away even if you file bankruptcy (taxes are exempt from bankruptcy release). The sooner you begin making payments on your taxes through either a payment arrangement or tax settlement, the sooner you will be able to eliminate the debt. Never assume you will not qualify for a tax settlement; even if you don't have any taxes reduced you may be able to ask the IRS to remove penalties an interest that increase the balance due.
Keep in mind that enlisting the services of a third party agency can be quite expensive and can reduce the amount of money you have available for paying your taxes. Only when you are unable to reach a satisfactory agreement with the IRS should you entertain the idea of hiring a third party agency to mediate on your behalf. Unless the IRS believes you are holding back on information that will prove you are able to pay more of the tax debt that you are claiming, they are more than willing to help you reach a fair and equitable agreement for paying your taxes. This is why you need to have all your financial records in order before you submit any paperwork for a tax settlement.