IRS Tax Settlement Defined

When a taxpayer settles their delinquent taxes using one of the programs offered to them by the IRS it is called an IRS tax settlement. If a taxpayer has valid reasoning for abating their penalties, or is struggling with unaffordable tax debt, then the IRS may offer them a settlement. A taxpayer’s financial situation is the main factor that is taken into consideration by the IRS in determining whether or not they qualify for a tax settlement. While the IRS is willing to make exceptions under certain conditions, they do prefer that an individual pays the taxes that they owe in full.

The IRS and the taxpayer may be able to come to some sort of agreement on a tax settlement that is less than the outstanding amount owed. If this is not possible, then the IRS may be able to find an alternate way to collect the taxes over an agreed upon period of time. All tax settlement programs that have been set in place require that the taxpayer meet the qualifications of the program in order to be approved.

There are three major types of tax settlements for which a taxpayer may qualify. The first is called an offer in compromise. This is the most common method used to settle tax delinquency. With this method, the taxpayer makes an offer to the IRS telling them how much of their delinquent taxes they can afford to pay. If the IRS accepts the offer then the taxpayer pays that amount and is once again in good standing.

The second type of tax settlement is called a partial payment installment agreement. This agreement allows a taxpayer to pay off their delinquent taxes over a period of time in installments. The total amount paid under this program is usually less than the total amount owed.

The third and final type of tax settlement is called penalty abatement. This program eliminates all or a portion of the penalties owed by the taxpayer. The taxpayer is still responsible for paying the delinquent taxes that they owe, but the penalty fees that are normally imposed on delinquent taxes will be waved.

Once the taxpayer determines which program they qualify for, they must submit the appropriate application forms to the IRS so that they can review them and make a decision. There are designated tax professionals who can complete the tax settlement application on a taxpayer’s behalf. It is not necessary to employ the services of tax professional to complete the application; however, they will be able to make sure the application is complete and error-free. This will increase the chances of the tax settlement application being approved.

If a tax settlement is reached, then the IRS will consider the taxpayer to be in good standing for the tax year or years that the settlement covers. If the taxpayer defaults on the agreement, or fails to uphold all the terms of the settlement, then they will once again be considered delinquent.