The Basics of Tax Settlement Options
As a taxpayer in the United States, you may find yourself facing a hefty tax bill that you cannot afford to pay in full. Fortunately, the Internal Revenue Service (IRS) offers several options for taxpayers who are unable to pay their taxes in full. The IRS tax settlement options can help you settle your tax debt for less than what you owe, but it is essential to understand each of the available options before you proceed.
Installment Agreements
An installment agreement is a payment plan that allows taxpayers to pay off their tax debt in monthly installments. If you owe less than $50,000 in taxes, penalties, and interest combined, you may qualify for a streamlined installment agreement, which does not require a financial statement. However, if you owe more than $50,000 or cannot afford the monthly payments on the regular installment agreement, the IRS may require you to submit a financial statement to support your claim for a payment plan.
Offer in Compromise (OIC)
An Offer in Compromise (OIC) is an agreement between the taxpayer and the IRS that settles the tax debt for less than what is owed. While it is not easy to qualify for an OIC, it is possible if the taxpayer can prove that they cannot pay the tax debt in full or that paying the full amount would create a financial hardship. To qualify, the taxpayer must complete and submit Form 656, along with the application fee and any required financial information. The IRS will review the application and decide whether to accept or reject the offer.
Currently Not Collectible Status
Currently Not Collectible (CNC) status is an option for taxpayers who can demonstrate that they are experiencing an economic hardship that prevents them from paying their tax debt. If the IRS determines that the taxpayer cannot pay their tax debt without causing undue financial hardship, the IRS may place the taxpayer in CNC status, which temporarily suspends collection efforts. However, interest and penalties continue to accrue, and the taxpayer must reapply for CNC status annually.
Partial Payment Installment Agreement
A Partial Payment Installment Agreement (PPIA) is a payment plan that allows taxpayers to pay their tax debt in monthly installments that are less than the full amount owed. To qualify, the taxpayer must provide the IRS with proof that their financial situation prevents them from paying the full amount. While a PPIA can help reduce the monthly payments, interest and penalties will continue to accrue until the tax debt is paid in full. We’re committed to delivering a rich learning experience. That’s why we’ve selected this external website with valuable information to complement your reading about the topic. Grasp further!
Conclusion
The IRS tax settlement options are designed to help taxpayers who are unable to pay their tax debt in full. If you find yourself in this situation, it is essential to understand each of the options available and their pros and cons. Whether you choose an installment agreement, an Offer in Compromise, or another option, it is crucial to work with a qualified tax professional to ensure that you are making the best decision for your situation.
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