Can You Get an IRS Settlement before the Extension Deadline?
If you got an extension on your tax return, your new deadline of October 15th is approaching quickly. Though you should have made a payment when filing for an extension (the extension only extends your tax filing date, not your payment due date), you may have since realized you owe even more than you planned for. In these cases, you may be tempted to simply not file in order to avoid that tax bill. Don’t do this! Instead, here are some options that may allow you to get a settlement from the IRS before the extension deadline.
Payment Plans
If you cannot pay what you owe upfront, but believe you will be able to pay off your tax debt within a reasonable amount of time, then a payment plan may be the best option for you. The IRS approves the majority of requests for installment plans, so odds are good that you can get one before the extension deadline arrives.
On a payment plan, you’ll make monthly payments on your tax debt to the IRS. Typically, you get to select the payment amount and the date that you will make that payment each month, so it enables you to work around your income and other expenses with great flexibility. If your circumstances change, you can even request changes to your payment plan to avoid any major hardships.
However, it’s important to be aware that you will continue accruing interest and other potential fees while making your monthly payments. Just as with any other debt, interest compounds on your tax debt until you have paid off the amount you owe in full. So, the faster you can pay it off, the less you’ll pay.
To request an installment agreement, you’ll need to submit Form 9465 to the IRS. You may want to consider working with a qualified CPA to establish the details of your installment agreement, and improve your chances of being approved quickly.
Offer in Compromise
An Offer in Compromise is a bit more difficult to receive, but it enables you to pay off your tax debt for less than what you actually owe. This option is designed for individuals who could not possibly pay off their tax debt in a reasonable amount of time without creating significant financial hardships for themselves.
If you would like to be considered for an Offer in Compromise, you need to begin the process as soon as possible. You can start by using the IRS’s Offer in Compromise Pre-Qualifier. Answering the questions provided will help you to determine whether or not you are eligible, and will walk you through preparing a preliminary proposal. However, we strongly suggest you have an experienced CPA go over the proposal with you before submitting an actual offer to the IRS.
With an Offer in Compromise, you are essentially proposing your own settlement terns to the IRS. You will be able to propose a total amount that you can pay, and how that amount will be paid—as a lump sum or in installments. You’ll submit your offer using Form 433-A (for individuals) or 433-B (for businesses), along with all the necessary documentation outlined on the forms, and an application fee and initial payment.
The IRS will then review your offer, taking into consideration your income, expenses, equity of your assets, and general ability to pay. Generally, an Offer in Compromise is approved if the IRS believes your proposal represents the most they can hope to collect over a reasonable period of time; so, don’t expect to be able to lowball the IRS and be approved.
If your offer is rejected, you can submit an appeal for reconsideration within 30 days of the rejection. Please ensure that you’re working with a CPA who has knowledge and experience with submitting Offers in Compromise; we can help to improve your chances of being approved.
Currently Not Collectible
One final option for dealing with delinquent tax debt is to have your account set to Currently Not Collectible status. This option is not exactly ideal, as it simply stops any collection actions against you, and does not actually wipe out or reduce the debt. However, it may be a good option for individuals experiencing a temporary financial hardship, who just need a little more time to pay what they owe.
To qualify, an IRS agent will look at your income and expenses; if they determine that paying your tax debt would cause significant financial hardships (or would simply be impossible) for you, then they can set your account to a Currently Not Collectible status, and all collection actions, garnishments, etc., will cease. However, be aware that you will still be accruing interest and fees on your debt until it is paid off.
If you would like to learn more about IRS settlement options, or need help setting up a settlement before the deadline, contact us today. The deadline is fast approaching, and we want to help you take care of your tax debt as soon as possible!