Tax Tips: Settling Your Outstanding Tax Debt With the IRS
Sign up for our FREE Monthly Email Newsletter
In addition to keeping in the financial know, you may be interested in checking your credit score and report.
¹The credit scores provided under the offers described here use the Equifax Credit Score, which is a proprietary credit model developed by Equifax. The Equifax Credit Score and 3-Bureau scores are each based on the Equifax Credit Score model, but calculated using the information in your Equifax, Experian and TransUnion credit files. The Equifax Credit Score is intended for your own educational use. It is also commercially available to third parties along with numerous other credit scores and models in the marketplace. Please keep in mind third parties are likely to use a different score when evaluating your creditworthiness. Also, third parties will take into consideration items other than your credit score or information found in your credit file, such as your income.
²The Automatic Fraud Alert feature is made available to consumers by Equifax Information Services LLC and fulfilled on its behalf by Equifax Consumer Services LLC.
³Equifax Credit Report Control™ is only available while you have a current subscription to Equifax Complete Premier. Locking your credit file with Equifax Credit Report Control will prevent access to your Equifax credit file by certain third parties, such as credit grantors or other companies and agencies. Credit Report Control will not prevent access to your credit file at any other credit reporting agency, and will not prevent access to your Equifax credit file by companies like Equifax Personal Solutions which provide you with access to your credit report or credit score or monitor your credit file; Federal, state and local government agencies; companies reviewing your application for employment; companies that have a current account or relationship with you, and collection agencies acting on behalf of those whom you owe; for fraud detection and prevention purposes; and companies that wish to make pre-approved offers of credit or insurance to you. To opt out of such pre-approved offers, visit www.optoutprescreen.com/.
4We will require you to provide your payment information when you sign up and we will immediately charge your card $4.95. After that, we will charge the card $19.95 for each month you continue your subscription. You may cancel at any time; however, we do not provide partial month refunds.
Equifax® is a registered trademark and Equifax Complete™ Premier is a trademark of Equifax, Inc. © 2014, Equifax Inc., Atlanta, Georgia. All rights reserved.
When I started in the tax field, working with the IRS on installment agreements and Offers in Compromise was like standing in quicksand. The IRS made obscure rules and changed them arbitrarily. It acted as an utter tyrant.
Then, in the 1980s, there were a series of Senate hearings about the problems, and what emerged was a kinder, gentler IRS.
This has been the case for roughly the last three decades, but these last couple of years, it’s been getting harder for taxpayers to cut deals and get help with filing taxes. Some of that is due to the mass exodus of experienced IRS officers and the hiring of new, inexperienced staff members that are given an abbreviated training program.
We could have problems this year, too. Due to the sequester and the resulting budget cuts the IRS is facing, it may be harder to schedule meetings with IRS officials to discuss your case or your appeal. Staff will be taking furlough days and shutting down operations several times this year.
Despite these issues, however, there are things you can do to try and settle your tax debts with the IRS.
Apply for a fresh start
The IRS implemented what it calls a Fresh Start initiative to make it easier for the average taxpayer to get either an installment agreement or Offer in Compromise.
Folks who owe the IRS $25,000 or less could be approved for an installment agreement by applying online. Of course, you can only be approved if all your tax returns have been filed. Non-filers will probably get rejected.
An installment agreement is a payment plan that allows taxpayers to pay debts owed to the IRS over time in the form of monthly payments. An Offer in Compromise allows taxpayers to settle with the IRS for less than the debt owed.
To apply for the Fresh Start installment agreement, simply select a monthly payment that will pay off your balance due, plus interest, within 24 months or before the IRS’s statute of limitations on collections expires.
How can you figure out the right amount? Use a loan amortization calculator. Enter your balance due, 3 percent for interest, and 24 months for the time period. The calculator will give you the monthly payment. Another trick: make the payment due date about 10 days after the date you plan to pay. That way, if you’re a little later on your payment than you intended, it will still be on time.
The IRS has expanded the streamlined Offer in Compromise (OIC) program to taxpayers with higher income levels ($100,000) and higher balances due ($50,000). The Form 656B booklet that you use to apply for the OIC is new and improved, and it offers a shorter timeframe for the income stream on which your offer is based.
You can apply for these plans yourself, without paying anyone $3,000 to $5,000 to do it for you; just be sure to include all statements and records that the IRS requests, and follow the instructions carefully.
In all cases, make sure you honor your payment agreements or your offers will be voided. Also, keep all copies of your payments and the documents you filed with your applications.
What about if you’ve been paying and you want to make sure your debt is wiped out? How can you be sure it won’t show up again in a few years?
That’s easy. Just send the IRS a Form 4506-T and enter the year (or years) in which you’ve been paying (the form allows you to enter up to 4 years). Check off each box in question 6. You will get a report about the status of your account. If the debt should have been paid off but is not, contact the IRS immediately at 800-829-1040.
You can be your own best advocate. Just step up and do it!
Eva Rosenberg, EA is the publisher of TaxMama.com, where your tax questions are answered. She is the author of several books and ebooks, including Small Business Taxes Made Easy. Eva teaches a tax pro course at IRSExams.com and tax courses you might enjoy athttp://www.cpelink.com/teamtaxmama.
Equifax maintains this interactive forum for education and information purposes in order to allow individuals to share their relevant knowledge and opinions with other members and visitors. We encourage you to participate in discussions about personal finance issues and other topics of interest to this community, but please read our commenting guidelines first. Equifax reserves the right to monitor postings to the forum and comments will be published at our discretion. Do you have questions or comments about your Equifax credit report or customer-service issues regarding an Equifax product? If so, please contact Equifax directly. All opinions and information expressed or shared in blog comments are solely those of the person submitting the comments, and don't necessarily represent the views of Equifax or its management.