Financial debt is a heavy burden to carry, and that burden only grows heavier when the debt is a federal tax debt. The IRS does not take debts lightly, and they can be fairly aggressive in their efforts to collect on what they are owed. But, despite how it may feel, the IRS is actually very willing to work with taxpayers to settle their debts and pay off their past-due taxes. In fact, there are 3 different IRS-sponsored plans that allow you to take care of your tax debts.
The article below will give you a brief overview of these 3 settlement options. However, we strongly recommend that you seek professional tax settlement services from a Provo CPA to determine which option is right for you, and to ensure your application is completely correctly.
Option 1: Installment Agreements
Installment agreements are the easiest settlement option to qualify for (though you still want to be meticulous when submitting your request to the IRS). As long as you owe less than $10,000 in federal taxes, the IRS usually doesn’t make much of a fuss with putting a taxpayer on an installment plan; in fact, they greatly prefer it to taking collection measures against you.
The first step in requesting an installment agreement is to accurately calculate how much you owe, including fees and interest; this is where working with a CPA comes in handy. Once you’ve calculated this amount, you and your accountant can work together to determine the amount you can afford to pay every month, as well as what day of the month you want to submit your payments on. Then, you’ll submit your request to the IRS.
If your request is approved, you’ll make regular monthly payments until the debt is completely paid off. It’s important that you make your payments every month to avoid being sent back to collections.
Option 2: PPIA
A PPIA (or partial payment installment agreement) is a payment plan available to taxpayers who owe more than $10,000 in federal taxes. As with an installment agreement, you’ll need to submit a request for a PPIA, which will include how much you can pay every month. If approved, you will make those payments on the specified date each month, just as with an installment agreement.
However, with a PPIA, the agreement only lasts for a certain amount of time. Once the term has expired, the remainder of your tax debt will be forgiven. This allows you to settle your federal tax debts for less than you owe, but it can be more difficult to qualify, so be sure to work with an expert for your best chance at being approved.
Option 3: An Offer in Compromise
An offer in compromise is the most difficult settlement option to qualify for, but it can allow you to settle your tax debt for much less than you actually owe. The application for this type of settlement includes a large packet of documents, which require detailed financials and other important data. (Again, you’ll want a CPA to help with completing this paperwork, to ensure accuracy.) You will also be required to send in a non-refundable application fee, along with an initial payment on your debts, which is also non-refundable.
When you submit an offer in compromise, you will propose your own settlement terms for your tax debt. This can be in the form of one lump sum, or in monthly payments over a period of time. The IRS will review your offer and compare it with your financial data. If they determine that the offer is the most they can reasonably expect to collect from you, then they may accept the offer instead of pursuing collections.
Federal tax debt is a serious matter, and settling it is not something that you should try to do alone. Contact us at Biesinger & Kofford CPAs to learn more about our tax settlement services and to speak to a Provo CPA who can help you.