It is difficult enough for most to pay bills and take care of their families. Paying a large tax bill seems close to impossible. No wonder there are so many commercials promising protection from liens and levies, all while settling tax debts for pennies on the dollar. For desperate taxpayers, tax settlements are the holy grail of debt solutions. This page will discuss who qualifies for tax settlements and what risks are involved.
Filing for Tax SettlementsVery few taxpayers actually qualify for tax settlements. Most simply do not have a dire enough financial situation to prove that there is no conceivable way a tax debt can be paid off before the Statute of Limitations runs out. However, if you decide you should file, adhere to the following steps when filing for tax settlements.
- Obtain an Offer in Compromise Booklet called a Form 656-B.
- Disclose your finances on a 433-A. Or, use a 433-B, for business tax settlements.
- Fill out the Form 656 and enter in the amount of your offer.
After the tax settlements paperwork is finished, you will need to send it to the appropriate Offer in Compromise office for your area. You will also need to send it with two payments. The first is a non-refundable $150 application fee. The second is a non-refundable 20% initial payment of your offered amount.
So, if you decide that you can reasonably negotiate your $80,000 down to $20,000, you will need to make a $4,000 payment right away. If the IRS disagrees with the tax settlements offered to them, they still apply that initial payment toward your debt.
Cautions about Tax SettlementsUsing tax settlements to help with tax problems is a real gamble. As with any risk, there are downsides. The following is a quick list of what taxpayers should be wary of before filing for tax settlements.
- By filing, you are disclosing all of your finances. This may lead to levies.
- Time spent reviewing your offer is added on to your statute of limitations.
- Your debt will continue to grow with penalties and interest during review.
A large caution for those considering tax settlements is to avoid tax debt relief companies that make dramatic claims to settle tax debts for pennies on the dollar. When the IRS does accept tax settlements, it is almost never for such a small percentage. Generally, these companies are making big guarantees to get a quick check. Once they file the paperwork for tax settlements and tell you the bad news, their job is over and you have lost thousands of dollars.
Other Options Beside Tax SettlementsIf you have no way to pay your tax debt, there are other tax programs that may work better for you than tax settlements. You can get an extension of time to pay, if you believe you will have the funds in 120 days or less. You can enter into an Installment Agreement to make monthly payments. You can even prove hardship and enter into a Currently Not Collectible state.
A trustworthy tax debt relief company can help you decide if tax settlements will work for you. Consult a professional. Call now or fill out the form below for a free tax debt consultation on tax settlements and your other options! We'll only connect you with a tax debt relief company holding at least a B rating with the Better Business Bureau.