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Settling Tax Debts with the IRS

Updated on June 14, 2013


Tax Debt

The power to tax is vested in the state and the IRS is the government’s agency tasked to collect the state and/or federal taxes. In the process, when taxpayers encounter unexpected problems in their finances, they become debtors to the government in the form of tax debts. Their balance owed will increase through penalties and surcharges, unless settled on time. The taxpayer would then be thrust into the inner web of unsettled tax debts.

While there are solutions available to the taxpayer to settle his tax debts, his options to get out of it is slim if he unwittingly allows days or months to pass by, due to deadlines and penalties they will incur.

The IRS would not give him an easy way out as there are guidelines to follow, which are in most cases unfavorable to the taxpayer. He may work out his tax delinquency personally or hire a professional tax practitioner to help him out. Usually, a practicing CPA or lawyer specializing in taxation could give him a good chance to settle his tax problems with the IRS. In either case, the government’s rule on settling tax debts would govern; generally the provisions are in favor of the tax collector / IRS.

Common Options Taxpayers Use to Settle Tax Debt

1. The taxpayer can use the Offer in Compromise or OIC, propose an installment agreement, or request an extension of payment to the IRS.

Under the first option-OIC, the taxpayer is under obligation to show proof and convince the IRS that what he is proposing to pay (usually an amount lesser than the tax due) is what he could afford. This process is a complex legal agreement. The service of a tax consultant is usually necessary to win IRS approval.

2. The second option is available to taxpayers with less than $25,000.00 in tax debt. They are qualified to settle through an installment agreement, and remitted by online payment agreement or OPA. Since this is also covered by a legal document, tax experts must be consulted.

3. The last recourse to settle tax debt is by negotiating for a payment extension. The IRS under its rules may agree to extend the tax payment up to a maximum of 45 days.

Settling tax debts is a very stressful situation, to both the person involved in the debt, as well as their finances, if not settled properly and on time. Get professional advice, and don’t procrastinate.


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