Settling Delinquent Tax Debt

Tax Headache

A popular misconception is that debt settlement can only resolve unsecured personal debts like credit cards and medical bills. While these debts can certainly be handled through a debt settlement program (and many debtors do handle these debts in this manner), these types of programs are also available to help debtors struggling with other types of obligations, too. One particular type of debt that causes a great deal of financial difficulty for both individuals as well as small businesses. Even famous celebrities occasionally have trouble paying their taxes. Fortunately, the IRS and some state governments will allow you to settle your tax debts so long as you meet certain eligibility requirements.

Federal Taxes – Settling Your Debt Through an Offer in Compromise

The most common way that a delinquent federal tax obligation is paid is through an offer in compromise. Like other debt settlement agreements, the offer in compromise is an agreement between the taxpayer and the IRS which allows the taxpayer to settle is or her outstanding tax debt by paying an amount less than the total obligation. The IRS has rules that govern who is eligible for an offer in compromise. Some of these rules and procedures include:

  • Taxpayers seeking an offer in compromise must have filed all tax returns and made all required estimated tax payments for the current year (if the taxpayer is a business that has employees, all required quarterly deposits for the current quarter must also have been made).
  • If a taxpayer can pay his or her full tax obligation through another means (such as through an installment plan), then an offer in compromise will generally be denied.
  • Offers in compromise are most likely to be accepted when:
    • There is a doubt as to the liability for the tax (this might occur when there is a dispute as to whether the correct tax was calculated or whether the particular individual or entity is legally liable for the tax debt at all);
    • There is a question about the collectability of the obligation, such as when the taxpayer’s income and assets are far less than the amount of the obligation; or
    • There are other circumstances that make the IRS feel collecting the full tax obligation would create a financial hardship for the taxpayer or would be unfair.

Having an offer in compromise accepted can depend on how well you present your case to the IRS. A skilled debt settlement lawyer can help evaluate whether you might be eligible for an offer in compromise and, if so, can help prepare the necessary forms required to present your case to the IRS.

State and Local Taxes – No Uniformity When it Comes to Settlement

State and municipal taxes are another matter. While state and local taxes tend to be less than federal taxes, individuals facing an economic hardship may find it difficult to pay their state and local taxes as well. Each state and locality may set its own rules and procedures regarding settling delinquent taxes. In such a circumstance, settling these tax debts usually requires a persuasive presentation that details why paying the full tax would create a severe hardship for you or why forcing the state or local government to collect the tax would be more costly for them than if they had accepted a settlement.

Get Help Settling Outstanding Tax Debt

If you find yourself facing a large federal, state or local tax bill, take action now to protect yourself, your assets, and your financial future. Speak with one of the debt settlement attorneys at Instant Settle Consultants, PLLC today. We will work with you to find a program or plan that will address your delinquent taxes. Contact our offices today at (602) 313-1661.

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