Millions of people with state and/or federal tax debt struggle every year to find a way to get out of their troubles. This creates a growing need in a difficult economy – tax debt settlement. Tax debt settlement resolves a person’s tax debt by reducing the debt and/or creating a repayment plan. Tax debt settlement, or tax relief, has become a significant financial resource for those with tax problems. Tax relief is possible because the IRS developed processes to address delinquent taxes and help settle tax debt. A difficult dilemma facing many people is in deciding whether it’s feasible to settle tax debt on their own or is hiring a tax professional the right choice?
For most people, the subject of tax debt relief is intimidating. Tax laws are complex and constantly changing. The prevailing perception is that the IRS has unchecked power in collecting back taxes from Americans. Unfortunately, most people don’t realize that tax settlement programs even exist or what options are available to help pay delinquent taxes. We all know, however, that the IRS has several weapons in their debt collection arsenal among which are: assessing penalties and thereby increasing the amount owed, issuing tax levies or attaching a lien to your property, and even wage garnishments. It is critical to take action if faced with tax debt, as failing to act increases the likelihood that a tax agency will levy a penalty or pursue legal avenues.
Tax Debt Settlement Options
Understanding the available tax debt settlement options is a key requirement in determining whether it is feasible to settle tax debt on your own or if hiring a tax relief professional is more beneficial.
The “Offer in Compromise”, or OIC, is a fairly complex legal agreement between an individual and the IRS. Essentially, you make an offer to the IRS for an amount that is less than the total due. However, it is on you to demonstrate that you are unable to pay any more than your offer. The IRS has to be convinced that you are not able to pay more than you are offering. While the OIC can drastically reduce a person’s tax obligations, it is the most difficult type of tax relief to get approved. The OIC process can take several months to complete, the forms are complex, and the success rate is low. Most experts agree that a tax professional should be employed to help you navigate through the OIC process to ensure the best chance of approval.
The second option is to request a payment extension. The IRS may agree to extend the time period in which a person must pay their tax obligations. They can extend it up to 45 days, however, it is possible to receive multiple extensions. This option works best for people who have manageable past due amounts owed – and can be a “do-it-yourself” request. To file for an extension, fill out Form 4868 through the IRS.gov website. If your tax debt is low, an extension may be all you need to find yourself in a financial position to pay your debt.
The third option is an installment agreement, which is a long-term payment plan that is agreed upon by the taxpayer and the IRS. Several different types of plans exist, which includes a partial payment plan option. Those with tax debt that is less than $25,000 may qualify for an online payment agreement (OPA). While an OPA can be filed directly by the taxpayer, it is still a smart idea to consult a tax professional in order to protect your interests. When using installment plans other than the OPA, given the complexity, an individual should seek the guidance of a tax professional to ensure that they are offered the best payment plan available for their needs.
Tax debt problems come in various forms and severities. The complexity of how to resolve tax debt builds depending on the amount owed, a person’s current financial situation, and the type of IRS action that has been taken place already. Each individual experiencing tax problems has a unique set of circumstances that, in turn, requires close, personal attention. While in several situations an individual may, or even should, consider settling their tax debt on their own, most experts suggest, at the minimum, to consult with a tax professional. For people with relatively small tax obligations and the resources to pay these obligations in the near future, settling your tax debt yourself through a payment extension or online payment agreement could be an acceptable and easy resolution to the problem. Most experts, however, strongly suggest that individuals and small business owners who face tax liens or levies, or owe relatively large tax amounts seek the advice and services of a tax relief professional. A tax pro provides value in dealing with complex processes and paperwork, knowledge of tax laws and the IRS, and determining the optimum repayment options for a given situation.
Types of Tax Professionals
Tax professionals who can assist in tax debt settlement come in four forms: certified public accounts, enrolled agents, tax attorneys, and tax debt relief companies or agencies.
- Certified public accountants may or may not be experts in taxation. When hiring a CPA, make sure of their qualifications regarding tax debt relief.
- Enrolled agents are federally licensed and considered experts in the field of taxation.
- Tax attorneys are often the most knowledgeable in the area of tax law. Many tax attorneys offer their services for tax debt settlement.
- Tax debt relief companies specialize solely in tax debt settlement and often have enrolled agents and tax attorneys on staff.
Beware: scammers are abundant in the tax relief industry and target those looking for a quick fix to their tax debt. Make sure you do your research before hiring any professional to help with your tax resolution.