- February 11, 2022
Some time ago, you decided to not pay taxes on your income and hoped that the IRS wouldn’t notice. Unfortunately, the IRS has determined that you owe back taxes for those years and is now sending you threatening letters with hefty fines and penalties for non-payment. Your best course of action at this point is to figure out how to settle with the IRS and reduce the total amount you owe. As you look at how to settle with the IRS, you’ll find offers of help from people who are a CPA, an enrolled agent, or a tax attorney.
All of these people can help you negotiate and create an IRS back tax settlement so you can get back on track. However, the only one who can keep your personal information private from the IRS is a tax attorney. There may be information you don’t want the IRS getting for various reasons, and a CPA or enrolled agent has a limited client-attorney privilege that the IRS can break if it sees fit. You want to get the best possible tax debt settlement from the IRS, get it done in a reasonable amount of time, and move on with your life without further pressure from the IRS.
There are a few options for IRS debt settlement that range from creating a payment plan to an offer in compromise. All of them have varying levels of difficulty to obtain, and you may wind up paying the full amount of fees and penalties the IRS adds to your tax debt. When you’re looking for how to settle with the IRS, you’ll find that a tax attorney can protect you from aggressive efforts by the IRS to collect money from you, negotiate on your behalf, and help you file outstanding tax returns so you can pay your back taxes with less in the way of punishing fees.
The IRS Debt Settlement Options
The IRS offers a few different debt settlement options for unpaid taxes. They include:
- Offer in compromise
- Partial payment installment agreement
- Installment agreement
- Not currently collectible
Offer in Compromise
Have you ever seen a commercial on TV that talked about getting an IRS debt settlement for pennies on the dollar? They’re talking about the IRS back tax settlement option known as an offer in compromise (OIC). The OIC is the most difficult type of settlement to obtain out of all the different settlement options, but it’s worth making the attempt with the help of a tax lawyer. Qualifying for the OIC centers around the fact that you’re unable to pay the amount the IRS is demanding.
Convincing the IRS that you don’t have enough money, and will not have enough for the foreseeable future, takes work. A tax attorney can handle the negotiations on your behalf and use their skills and knowledge to get the IRS to accept the OIC. An attorney can also get the IRS to agree to a payment plan in the event you don’t have the funds available to pay off the settlement in one lump sum.
Partial Payment Installment Agreement
Also known as an installment agreement, the partial payment installment agreement (PPIA) is similar to the OIC, but you pay a specified amount every month for a period of time. When the PPIA ends, any remaining tax debt is wiped out. This type of payment agreement can help you get rid of tax debt, but there are downsides to the PPIA that other payment plans don’t have.
In order to qualify for a PPIA, you have to owe at least $10,000 in back taxes, never have an OIC accepted by the IRS, have sufficient assets for the IRS to place a lien against, have all of your tax returns up to the current date filed with the IRS, be current on payroll taxes, and have paid other back taxes. You’ll also have to fill out Form 9465 as part of the process. You should talk to a tax attorney about using the PPIA when you’re looking at how to settle with the IRS.
The installment agreement is the most straightforward way to repay your IRS tax debt, but you can’t use it to negotiate a settlement. The installment agreement requires you to make payments on your debt for up to six years, and the balance accrues penalties and interest on the outstanding balance.
Currently Not Collectible
Currently not collectible (CNC) freezes collections on your account because you don’t have the means to pay off your tax debt while maintaining living expenses. You have to get approved by the IRS for CNC status, but if you’re successful, the IRS stops all attempts at collection, and ceases wage garnishments and levies. However, your outstanding balance is still subject to interest and late penalties.
The IRS typically requires documentation to demonstrate that you’re unable to pay your IRS back tax settlement by showing employment income, monthly expenses, debts, and any other related financial information. You’ll undergo an annual review of your income to determine if you can start paying your debt again.
Bankruptcy is also an option, although it’s not one the IRS wants you to use. Your tax debts have to be at least three years old and you have to be up to date with filing your tax returns. Before you decide to take this route, you should discuss it with a tax attorney. Bankruptcy impacts your personal finances for a long period of time, and you should seek guidance from an attorney about the viability of filing for insolvency.
How a Tax Debt Settlement Attorney Can Help
A tax lawyer has extensive education and experience representing their clients in tax matters concerning the IRS and state taxing authorities. They’re trained to negotiate with the IRS in order to achieve an equitable settlement on behalf of their client. The type of settlement a tax attorney works to achieve with the IRS depends on the specifics of your situation, but the overall goal is to get the IRS to reduce or eliminate penalties, interest, and any fees or fines that have been added to your tax debt.
In the event you’ve had a tax levy or lien placed on your property or income by the IRS, a tax debt settlement lawyer can find ways to get them released. The overall goal is to get the IRS to agree to a settlement amount and a payment arrangement so you can settle the tax debt by making payments that are within your means. In some cases, the lawyer may be able to reduce the amount of your original tax liability and get the IRS to accept an amount you’re able to pay.
Another way a tax lawyer can help comes in the form of communicating with the IRS. After you sign IRS Form 2848, you authorize the lawyer to communicate with the IRS on your behalf. A tax lawyer knows how the IRS operates and uses that insight to effectively engage with IRS agents for better client outcomes. You’re relieved of the need to learn how to negotiate with the IRS; you don’t have to deal with further communication from the IRS; and you can save money on the amount owed to the IRS.
Retaining a Tax Attorney Means Your Personal Information is Kept Confidential
After you retain a tax attorney to represent you in your IRS back tax settlement process, all of your communications with your lawyer become privileged. That is, the IRS cannot break the confidential communications between you and your lawyer. The purpose of attorney-client privilege is to give you, the client, someone you can confide in. This confidence between a lawyer and client is an essential part of forming a defense against the IRS and preventing the IRS from getting hold of potentially incriminating information and using it against you.
CPAs and enrolled agents are granted a limited form of privileged communications with their clients under Section 7525 of Chapter 77 of the Internal Revenue Code. Under Section 7525, CPAs and enrolled agents are able to claim privileged communication only when the information in noncriminal matters. When you retain a tax lawyer, you’re getting fully privileged communication, and the IRS is unable to break that privilege no matter what information may come to light as you discuss a negotiation strategy with your lawyer. You don’t have to worry about something sensitive coming to the attention of the IRS when you retain a tax attorney to represent you in front of the IRS.
Contact Our Experienced Tax Attorney Today for Help with Your Tax Debt Issues
If you owe the IRS and need relief from their efforts to collect back taxes from you, call Attorney Jerry E. Smith for help with an IRS back tax settlement. Jerry Smith is an attorney and CPA with extensive experience representing clients and getting them an appropriate IRS debt settlement. Call us for a free one-hour consultation at (317) 917-8680 to learn more about how he can help you get relief from the tax debt collection attempts made by the IRS. We have weekend and evening appointments available for your convenience.