The 3 Common IRS Back Tax Settlements

Back tax issues create a need for you to find a proper IRS back tax settlement.  This process is not as fun as receiving a tax refund.  Believe me, I understand what you are going through.  There are tons of websites sharing the possibilities of what your tax resolution might look like.  However, there are no guarantees that these tax resolutions will apply to your tax debt situation.  Not to mention, you have plenty of other things you would like to spend your time doing.  Like making money instead of paying out money.  Sound about right?

3 Most Common Outcomes

Having been in your situation, you will feel relief knowing the likely outcome of you tax resolution.  Also, knowledge makes you better equipped to make important decisions during the tax settlement process.  These important decisions may make or break your finances.

The following three most likely tax resolutions are based on, many years of experience:

1st Outcome | Offer In Compromise (OIC):

Fact is, you are probably not going to qualify for this tax relief program.  Very few people do, yet a lot of tax relief companies will dangle this carrot in front of you to pressure you into buying their services.

An offer in compromise, allows you to pay less back taxes to the IRS than you owe.  It is worth evaluating if your net worth is low or if you income is barely enough to cover your bills.  Since the guidelines occasional change for an OIC, I am not going to share many details on how you may qualify.  The gist is, you have to be able to prove you can’t afford paying back your tax debt and that doing so would affect a reasonable standard of living.  There are exceptions to this guideline so, I suggest asking one of our back tax professionals for guidance.  (Ask A PRO)  One more important thing to remember, if a tax relief company guarantees you qualify for this program, run away from them as fast as you can.

2nd Outcome | Installment Agreement:

Assuming you don’t qualify for an OIC, you MAY eventually be applying for an Installment Agreement.  In this scenario, you will likely be paying your full tax debt owed.  However, your back taxes owed split into monthly payments the IRS believes you can afford.

The monthly payment for this IRS payment plan is based on your financial situation.  The IRS requires you to complete IRS Form 9456, which asks for all your financial information.  What you enter into that form and your negotiations with the IRS, determines your monthly payment.  The form is difficult to complete correctly, as it is not as straightforward as it appears.  You need to spend your time learning about the guidelines for an installment agreement if you are going to apply for one yourself.  If you need assistance, please feel free to contact one of our back tax pros.

3rd Outcome | Review & Amend Back Tax Returns:

It is very common for a taxpayer to believe the amounts represented on an IRS notice indicate, the actual amount owed in back taxes.  Many taxpayers don’t think to review their tax return for errors and omissions.  Sometimes, taxpayers forget that they never even filed a tax return to begin with.  Consequently, the IRS will file a tax return for them known as a Substitute Tax Return (SFR).  SFRs may create superficially large tax debts compared to the amount, the taxpayer actually owes.  Taking the time to review and amend a tax return can greatly reduce your tax liability or even eliminate it altogether, thus, making this a common tax resolution outcome.

What Does This All Mean For You

The three likely tax settlement options appear simple and straightforward, right?  Not so fast!  The 3 outcomes are definitely oversimplified and need to be understood as outcomes.  The real complexity lies in the process of tax settlement, as there are so many details that need to be considered before applying for any program.  These details will heavily influence the costs and benefits of your tax settlement.

Experience & Cost Benefit of Professional Help

Much like learning to write, you are not going to have the best penmanship the first time writing a word, much less an essay.  Effective tax settlements require knowledge and experience.  That is not to say you can’t do this on your own.  It will require a lot of patience and active learning.  You will need to invest the time and energy to understand, how your actions in the tax settlement process will affect your outcome.  Which inspires the need to consider the cost benefits of settling IRS back taxes problems, on your own.

On average, the least amount you will spend for professional back tax help, hovers around $3000 dollars.  So let’s say you owe $3000 to the IRS.  Is it worth hiring a tax relief company to help you?  Probably not.  In this scenario, I recommend hiring a professional tax PREPARER ($100-$500) to review your return before cutting a check to the IRS.  Mistakes could have created your tax debt and as result, you may not owe the IRS.  I wouldn’t say errors and omissions on tax returns are common, but I have seen this scenario play out many times.  Also, penalties and interest owed because of your tax problems, disappear once your amended return is submitted.

The Bottom Line

Bottom line is this: your tax settlement will likely result with one of the three outcomes above.  Knowing the likely outcomes will assist you in “feeling out” your approach to resolving your back tax debt.  Let me know if this helped you out.  Leave me comments below or ask me questions.  I will try and help you out.  Also, if you need professional help, I can refer you to some affordable back tax help companies.

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