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Settle Tax Debt: A DIY Guide
By Kari Johnson on June 2, 2011

stressed-(1).jpgMany Americans have debt.  Most of it is in the form of student loans, credit cards, or money lent to them for large purchases.  But there are also those who owe money to the government in tax debt.  If you have had debt problems in the past, you might know that you can negotiate to pay less on your consumer debt.  What you may not know is that there is a similar method through which you can settle tax debt.

It is called an Offer in Compromise, and it is the only way to settle with the IRS for less than what you owe.  You must submit an application along with a fee of $150, although there are certain exemptions to the fee.
There are three categories your Offer in Compromise could fall under.

When there is Doubt as to Collectability, the IRS will have to determine if it seems like the taxpayer would not be able to pay the full debt, even if given all the time in the period allotted for collection.

There is also Doubt as to Liability.  With this, the government determines that you may not actually owe what they have claimed you do.  There are a few reasons this is possible, including misinterpretations of law as well as evidence be provided to support this claim.

Finally, even if they are sure you owe the money and can pay the money eventually, there may be an exceptional circumstance the IRS will consider to allow you an Offer in Compromise based on Effective Tax Administration.

Once the government has agreed to an Offer in Compromise, there are a few payment options.  You could pay the full amount in one lump sum, or in five payments in an allotted period of time.  Depending on the amount of time you will take, some of the money may be required when you first file the form.  There is a short term payment offer where you make payments over a period of 24 months.  Finally, if that is not possible, you could use a deferred periodic payment plan, involving payments over the period of time the IRS still has to legally claim the debt.

The best way to figure out how to settle your tax debt based on your situation and the amount you owe is to look into www.irs.gov and find where your situation fits into the legal boundaries.  While there are tax lawyers who may be authorized to help, be wary of companies offering to settle your debt with the IRS.  Only specific situations are eligible for this kind of negotiation, and you should research it yourself before applying for anything.
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