The phrase tax settlement usually refers to the process where taxpayers settle their tax liabilities with the Internal Revenue Service (IRS). Specifically, taxpayers reach an agreement or settlement, with the IRS agreeing to pay their income tax debts in part or in full through one of the IRS’s back tax resolution programs. The IRS offers several different back tax resolution programs to taxpayers based on their individual financial situations. However, before the IRS will consider an offer to resolve back taxes, taxpayers must be fully compliant with their tax obligations. The exact tax obligations vary, but typically taxpayers must have all past-due tax returns filed and they must remain compliant with ongoing payments.
The simplest and fastest way for taxpayers to settle their back taxes would be through fully paying their back taxes to the IRS. However, even if a taxpayer has the necessary funds to repay the IRS, it can still be a confusing task to engage in. Many taxpayers struggle to obtain accurate and consistent information about their tax account with the IRS.
Another option for IRS tax debt settlement would be through an Offer in Compromise. An IRS Offer in Compromise allows taxpayers that cannot afford to full pay their back tax liability the opportunity to settle for less than what they owe based on the individual taxpayer’s financial situation. The IRS looks at a taxpayer’s past, current and future financial situation when evaluating whether an Offer in Compromise should be accepted.
If a taxpayer does not qualify for an IRS Offer in Compromise then another tax settlement option is negotiating an Installment Agreement with the IRS. An Installment Agreement allows taxpayers that cannot afford to fully pay their back tax liability the option to pay their back taxes through more manageable monthly payments. Depending on the circumstances and the amount of time that the IRS has left to collect the tax debt, the Installment Agreement may pay all or part of the back tax liability.
The fourth option for IRS tax settlement is when the IRS places a taxpayer’s account on Currently Not Collectible (CNC) status. The IRS will make this decision when they have determined that they are presently unable to collect the taxes from the taxpayer by full payment or through an Installment Agreement. Once the account is placed on a CNC status, the IRS does not pursue collection activity against the taxpayer and the statute of limitations on the tax liabilities will continue to run. Unless the taxpayer’s financial situation changes, the account will remain on a CNC status until the tax liabilities expire. However, if the taxpayer’s financial situation improves the account will be taken off of CNC status so that the IRS can collect the taxes through full payment or an Installment Agreement.