How do I settle IRS tax debt?

February, 05 2020 by Karen Thomas-Brandt, EA

Having a tax bill looming over your head is not a situation anyone ever wants to be in. However, sometimes stuff happens, and we can find ourselves in just that position. Fortunately, there are ways to deal with tax debt owed to the IRS. Here are a few solutions:

Pay it off: This may seem obvious and not the answer you are looking for, but consider how much you spend every month in “extras” such as coffee, eating out, manicures, pedicures, etc. Maybe pull back on these expenditures and pay your tax bill, which will otherwise accrue interest at the federal short-term rate plus 3 percent.

Installment Agreement: One of the most common solutions to settling IRS tax debt is an Installment Agreement. Setting up an Installment Agreement with the IRS allows a taxpayer to establish a monthly payment plan and will give you up to 72 months to pay off your IRS debt. An Installment Agreement is a great option for taxpayers who need a little extra time to pay off their debt; keep in mind, however, that interest will continue to accrue until the debt owed is paid in full. Note: If you can pay your full amount owed to the IRS (tax, interest, and penalties) within 120 days, you can save the cost of the set-up fee for the installment agreement.

Offer in Compromise: This option, while appealing, is often misunderstood. An Offer in Compromise will allow a taxpayer to settle their debt for less than the full amount owed; however, only about 40% of Offers in Compromise submitted are accepted by the IRS. Generally, an Offer in Compromise will be accepted by the IRS when the amount offered is reasonable and represents the most they can expect to receive within the statute of limitations.

These are just a few of the options available to taxpayers who have IRS tax debt. To review all tax debt relief solutions, please click here for more information. Our experienced tax professionals will help you figure out the best IRS tax debt settlement option for you.