Similar to when two parties come to an agreement in a lawsuit trial, a tax settlement is an agreement between the Internal Revenue Service (IRS) and the taxpayer to resolve tax debt. Though there are multiple ways to reach a settlement, they are designed particularly for people with severe financial hardships.
In order to settle tax debts, it is necessary to have an understanding of what the IRS considers a “financial hardship.” Every case is different and reviewed individually. For some, it is very clear whether or not debt forgiveness if possible. For others, it is not as clear. When tax settlement is not an option, tax relief is still possible.
What is the Difference Between Tax Settlement and Tax Relief?
Tax Settlement allows tax debt to be settled for less than what is owed. Some or all of the tax debt will be forgiven, for those with severe hardships.
Tax Relief is available to most taxpayers. Some of these examples include a filing deadline extension, a monthly installment agreement, penalty abatement, wage garnishment removal, bank levy removal, tax lien removal, injured or innocent spouse relief
The 2008 Fresh Start Program:
*Increased minimum tax debt at which the IRS issues liens, which resulted in fewer liens
*Made it easier for the IRS to remove liens without debt repayment
*Made it easier for small struggling businesses to get Installment Agreements
*Made it easier for taxpayer to achieve an Offer in Compromise
“These steps are in the best interest of both taxpayer and the tax system. People will have a better chance to stay current on their taxes and keep their financial house in order. We all benefit when that happens.” – Doug Shulman, IRS Commissioner
In summary, tax relief gives taxpayers enough of a break to get back on their feet, whereas tax settlement (or Offer in Compromise) is available when the taxpayer’s income and assets are less than the full amount of tax liability.
If the taxpayer seeks no relief or settlement option, the IRS can and will garnish the taxpayer’s wages or levy their bank account, which cases a significant disruption to the taxpayer’s life.
Do I Need to Hire a Professional?
Experienced and reputable tax professionals can help you decide which program will benefit you most. If you have any questions or would like to talk to the professionals at My Tax Coaching, please Contact us.
My Tax Coaching, a Dearborn, Michigan CPA firm specializes in tax resolution. If you want an expert tax resolution specialist who knows how to navigate the IRS maze, contact our firm and we’ll schedule a no-obligation confidential consultation to explain your options to resolve your tax problem once and for all.