Tax Settlement Considerations


Before beginning a quest to resolve back tax issues with the IRS, it is important for taxpayers familiarize themselves with how taxes are settled.  Without this important knowledge, the individuals may find themselves at the mercy of a tax professional, who lacks the expertise and ethics to effectively help.  There is no way to discern between good and bad information without a basis of, the issues is involved in the tax settlement process.


Tax Relief Options Will Vary

Tax settlement options vary from person to person.  Certain relief options make more sense than others and are based entirely on, an individual’s situation.  These factors will include:

  • Taxpayer’s combined income
  • Assets (bank accounts, retirement accounts, etc)
  • The length of time the tax debt has been owed
  • Past tax return filings
  • Actions taken by the IRS to collect back taxes

Settling Your Taxes For Less Than You Owe

The IRS will not allow taxpayers to pay less than they owe, unless they qualify for one of these programs (e.g. Offer in Compromise).  Qualifications for these Fresh Start Programs are next to impossible to obtain if, the taxpayer can afford a reasonable standard of living.  However, it is very important to note, hardships could be caused by the amount of the tax debt owed.  For example, owing $1,000,000 in tax debt is clearly a hardship on an individual earning $75,000 a year.

Household expenses and obligations (i.e.- dependents & disabilities) factor heavily into the settlement equation.  Professional help is highly advised, if the taxpayer believes they have a solid hardship in life which, is preventing them from satisfying their tax obligation.  Also, the taxpayer should seek professional help if, satisfying the tax debt by itself, would create a substantial hardship.  A taxpayer should consider if the following factors apply:

  • Lack of income
  • Job loss
  • Health and disability issues within the household
  • Unforeseen financial shocks (i.e. house burned down, death in the family, etc)
  • Back taxes are creating a financial hardship
  • The amount of back taxes owed, could not be paid in installments over a reasonable period of time

Do You Actually Owe The Tax Debt?

An IRS letter stating you owe back taxes doesn’t always mean you do.  Many back tax debts are resolved by carefully reviewing past tax returns.  In many cases, taxpayers are unaware they never filed their tax returns for the back taxes in question.  Which may turn out to be a good situation, if the IRS filed a tax return for you.

After a period of time, the IRS will file a return for you with the best information (accurate or flawed) they can find.  They consider past years tax returns and third party information to create a “Substitute For Return (SFR)“.  Any taxpayer who falls into this situation, may only need to file their late tax return to resolve their tax debt.

Professional help is highly recommended if a tax return WAS filed for the tax debt in question.  Paying a few hundred dollars to review a tax return may translate to saving thousands of dollars.  In other words, a taxpayer’s first step in settling back taxes, should never be a call to the IRS.  Read More About – The 3 Common IRS Back Tax Settlements

tax settlement tips