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The short answer is yes. As stated before, seeing a tax professional is incredibly important in identifying the different options a taxpayer has when trying to settle his debt. No tax settlement will be entertained by the IRS unless all the past returns have been filed. This means if a taxpayer has outstanding tax returns that they have yet to file, they must first file these before beginning correspondence with the IRS.
Generally, the IRS is not going to destroy your financial situation because you do not have the money to pay your taxes. With a professional and the right course of action, the IRS will work out an agreement with the delinquent taxpayer that works for all parties involved.
When dealing with the inability to pay outstanding taxes, the IRS has multiple different installments that can give relief to a taxpayer. It’s important to note that it’s recommended the taxpayer pay off as much as they can of their debt before moving forward with a payment plan. The payment options go as follows; an installment agreement, an offer in compromise, or a temporary delay of collection.
Installment Agreement: Essentially, this is a monthly payment plan that allows a taxpayer to pay off the entire debt owed in certain increments over a longer period of time. In this way, the taxpayer pays off the debt much like they would a loan. The time can range of payment can range anywhere from 3-6 years, dependent on the amount. If the amount owed is $50,000 or less, there are ways apply for the installment agreement online.
Offer in Compromise: This type of payment plan is basically a single settlement. After consulting with the a tax professional, the taxpayer then pays off an entire lump sum that equals less than the amount owed. This amount is decided by the IRS after assessing the taxpayer’s account thoroughly. However, the taxpayer has to meet a specific criterion for this type of payment plan and it’s usually fairly difficult to meet eligibility. Take a taxpayer that is eligible for an installment agreement into consideration, if they are indeed so, they will not be further eligible for an offer in compromise. That’s why it’s important to consult professional help to determine eligibility. If the taxpayer is eligible, the offer in compromise can be incredibly beneficial because it forgives part of the outstanding amount.
Temporary Delay of Action: This isn’t so much a payment plan, but more a hold on the payments entirely. What will happen is the IRS will tag the taxpayer’s account as ‘not collectible’ and will wait for the taxpayer’s financial situation to improve. It’s important to note that this type of ‘payment plan’ will not forgive any of the outstanding amount and will sometimes tack on penalties and interest while the taxpayer comes up with the money. In some cases, the delay of the process goes without penalty and allows the taxpayer more time to resolve the issue.
As a general note, the IRS wants to help those facing economic hardship. That’s why it’s important to not only do your own research, but to make sure that all your cards are in order and that you know exactly what options you’re eligible for.