How to Settle Your IRS Debt: Expert Tips for Taxpayers

Owing money to the IRS can be really stressful, but you’re not alone in this. Many people have IRS debt, and the good news is that there are ways to handle it. The IRS has programs to help you settle your debt, so with the right plan, you can reduce the amount you owe and ease the financial pressure. In this guide, Usataxsettlement will break down expert tips on how to settle your IRS debt in simple, easy-to-understand steps. Let’s get started!

1. Understand Your IRS Debt

Before you can figure out how to settle your IRS debt, you need to know exactly how much you owe. This is the first important step.

• Get Your Tax Records: You can log in to your IRS account online or request a tax transcript to find out the total amount you owe. This will include any penalties or interest.
• Know What You’re Dealing With: IRS debt usually consists of the original tax amount, plus penalties for not paying on time, and interest that builds up over time. Understanding this breakdown helps you see the full picture of what you owe.
  Once you know your total debt, you’ll be able to explore the different options to settle it.

2. Stay in Touch with the IRS

Ignoring the IRS is never a good idea. If you don’t communicate with them, they can take serious steps like garnishing your wages or placing a lien on your property. So, it’s important to reach out to them as soon as possible.

• Respond to IRS Notices: If you receive a letter from the IRS, don’t ignore it. Follow the instructions and contact them before they take any further action.
• Call the IRS: If you’re unsure about the details of your debt or need clarification, call the IRS directly. They can give you more information and guide you through your payment options.
  Staying in touch with the IRS shows them that you’re willing to cooperate, which can help when it comes to settling your debt.

3. Set Up a Payment Plan

One of the easiest ways to settle your IRS debt is by setting up a payment plan. The IRS offers Installment Agreements that let you pay off your debt over time, instead of all at once.

• Short-Term Payment Plan: If you owe less than $100,000, you can request a short-term plan. This gives you 180 days or less to pay your debt.
• Long-Term Payment Plan: If your debt is under $50,000, you can request a long-term plan, where you make monthly payments over a few years.
  How to Apply for a Payment Plan:

1. Online: You can apply for a payment plan on the IRS website by logging into your account.
2. Phone: Call the IRS and request a payment plan over the phone.
3. Form 9465: You can also fill out and mail this form to apply for a payment plan.
   A payment plan is perfect if you can’t pay off your debt in one go but can manage smaller payments over time.

4. Offer in Compromise (OIC)

If you’re unable to pay the full amount of your debt, you may qualify for an Offer in Compromise (OIC). This allows you to settle your IRS debt for less than the full amount, but only if you can prove that paying the full amount would cause financial hardship.
How to Apply for an OIC:

• Submit an Application: Use Form 656 to apply for an Offer in Compromise with the IRS.
• Provide Financial Info: You’ll need to give detailed financial information, like your income, assets, and expenses, so the IRS can determine if you qualify.
• Initial Payment: You must include an application fee and a portion of your offer when you submit your application.
  While an OIC can reduce your debt significantly, keep in mind that the IRS only accepts a small percentage of these offers. They usually approve it only when paying the full debt is truly not possible.

5. Request Penalty Abatement

If your IRS debt has increased due to penalties for late payments or not filing on time, you might be eligible for penalty abatement. This means the IRS will reduce or eliminate the penalties, which can lower your overall debt.
Types of Penalty Abatement:

• First-Time Penalty Abatement: If this is the first time you’ve fallen behind on your taxes, you may qualify for a one-time penalty waiver.
• Reasonable Cause: If you had a valid reason for missing your payment or filing deadlines, like a medical emergency or natural disaster, you could get penalty relief.
  How to Apply:
• Call the IRS: Explain your situation and ask for a penalty abatement.
• Send a Written Request: Write a letter explaining why you believe you qualify for penalty relief.

If the IRS agrees, they will remove the penalties and any interest that was charged on them. This can really help reduce the amount you owe.

6. Delay Collection Temporarily

If you’re facing financial hardship and can’t pay anything right now, you may be able to qualify for Currently Not Collectible (CNC) status. This means the IRS will temporarily stop trying to collect payments from you.

• Provide Financial Information: The IRS will review your financial situation to decide if you qualify for CNC status. You’ll need to show proof of your income, expenses, and assets.
• Debt Accrues: While collection is paused, your debt will continue to accumulate interest. So, you’ll still owe the money later on.
  CNC status gives you some breathing room while you deal with financial challenges, but it’s not a permanent solution.

7. Consider Bankruptcy as a Last Resort

Although it’s rare, some IRS debts can be discharged in bankruptcy. This is typically only possible for older debts and under certain conditions.
Bankruptcy Options:

• Chapter 7: This type of bankruptcy could erase your IRS debt, but only if it meets strict requirements.
• Chapter 13: In this form of bankruptcy, your debt will be part of a repayment plan over several years.
  Requirements for Discharging IRS Debt in Bankruptcy:
• The debt must be at least three years old.
• You must have filed a tax return for the debt at least two years ago.
• The IRS must have assessed the debt at least 240 days before you file for bankruptcy.
  Bankruptcy can have long-lasting effects on your financial life, so it should be considered only as a last option.

8. Get Help from a Tax Professional

Settling IRS debt can be confusing, and even small mistakes can be costly. A tax professional, such as a certified tax attorney or a CPA, can help guide you through the process and potentially save you money.
Benefits of Hiring a Tax Professional:

• Knowledge of IRS Rules: They know the ins and outs of IRS regulations and can help you find the best option for your situation.
• Negotiating: A professional can speak to the IRS on your behalf and may get you a better deal.
• Reduce Stress: Letting an expert handle the complicated stuff means less stress for you.
  Hiring a tax professional may cost money, but it can be worth it if they help reduce your debt and make the process smoother.

9. Stay Up-to-Date with Your Taxes

Once you’ve started settling your IRS debt, it’s super important to stay on top of your future taxes. The IRS won’t settle old debts if you keep falling behind on new taxes.

• File Your Taxes on Time: Always file your tax return by the due date to avoid new penalties.
• Pay on Time: If you owe taxes for the current year, pay them by the deadline to avoid building up new debt.
  Staying current with your taxes will make the IRS more likely to work with you on settling past debts.

10. Take Action and Stay Calm

It’s normal to feel overwhelmed when you owe money to the IRS, but it’s important to stay calm and take action. The sooner you address your IRS debt, the more options you’ll have to settle it. Whether it’s through a payment plan, an Offer in Compromise, or penalty relief, there’s always a way forward.

Final Thought

Owing money to the IRS doesn’t have to be a lifelong burden. By understanding your debt, communicating with the IRS, and exploring different settlement options, you can reduce what you owe and get your financial life back on track. With these expert tips, you’re one step closer to resolving your IRS debt and gaining peace of mind. Take action today, and remember, there’s always a way to deal with IRS debt.