IRS Tax Settlement Firms: Debt Relief Program 2023 – If you owe taxes to the IRS and are struggling to pay them, you may be tempted to seek help from a tax relief company. These are for-profit organizations that offer to negotiate with the IRS on your behalf to reduce your tax debt or monthly payment.
But are they worth it? And how do they work? Here is what you need to know about IRS tax settlement firms and the debt relief program they offer.
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What Is a Tax Settlement Firm?
A tax settlement firm is a company that claims to help taxpayers who owe back taxes to the IRS. They typically charge a fee for their services, which may include:
- Preparing and filing your tax returns
- Requesting an offer in compromise, which is an agreement to settle your tax debt for less than the full amount you owe
- Requesting an installment agreement, which is a payment plan to pay your tax debt over time
- Requesting a penalty abatement, which is a reduction or removal of penalties and interest
- Requesting a currently not collectible status, which is a temporary suspension of collection actions by the IRS
- Representing you in audits, appeals, or court cases
Some tax settlement firms may also offer other services, such as credit counseling, debt consolidation, or bankruptcy assistance.
How Do Tax Settlement Firms Work?
Tax settlement firms work by contacting the IRS on your behalf and negotiating a resolution for your tax debt. They may request one or more of the options mentioned above, depending on your situation and eligibility. They may also communicate with the IRS on your behalf and handle any paperwork or documentation required.
However, not all tax settlement firms are legitimate or trustworthy. Some may use deceptive or unethical practices, such as:
- Charging upfront fees before providing any service
- Making false or unrealistic promises about the outcome of your case
- Misrepresenting their qualifications or credentials
- Failing to disclose the risks or consequences of their services
- Keeping you in the dark about the status of your case or the fees you owe
- Taking your money and not delivering any service
Therefore, it is important to do your research before hiring a tax settlement firm. You should check their reputation, reviews, ratings, complaints, and credentials. You should also read and understand the contract and fee agreement before signing anything. And you should always verify any information they provide with the IRS directly.
What Is the IRS Debt Relief Program?
The IRS debt relief program is not a specific program offered by the IRS, but rather a general term that refers to the various options that the IRS provides for taxpayers who owe back taxes. These options include:
Offer in compromise
This is an agreement to settle your tax debt for less than the full amount you owe. The IRS will consider your ability to pay, income, expenses, and asset equity when evaluating your offer. You must meet certain eligibility criteria and submit an application with a fee and an initial payment. If your offer is accepted, you must pay the remaining balance in a lump sum or in installments. If your offer is rejected, you can appeal or submit a new offer.
Installment agreement
This is a payment plan to pay your tax debt over time. You can request an installment agreement online, by phone, by mail, or in person. The amount and duration of your payments will depend on how much you owe and how much you can afford to pay. You will also have to pay interest and penalties on your balance until it is paid off. The IRS may also file a federal tax lien against your property until your debt is satisfied.
Penalty Abatement
This is a reduction or removal of penalties and interest that have accrued on your tax debt. You can request a penalty abatement if you have reasonable cause for not paying or filing your taxes on time, such as death, illness, natural disaster, or financial hardship. You can also request a first-time penalty abatement if you have no prior penalties for the past three years and are current with your filing and payment obligations.
Currently not collectible status
This is a temporary suspension of collection actions by the IRS if you have no ability to pay your tax debt at this time. The IRS will review your income, expenses, and assets and determine if you qualify for this status. If you do, the IRS will stop pursuing collection activities such as levies or garnishments until your financial situation improves. However, interest and penalties will continue to accrue on your balance until it is paid off.
The IRS also offers other forms of relief for taxpayers who are impacted by COVID-19, such as:
Easier access to installment agreements
The IRS has expanded the eligibility criteria and payment options for taxpayers who owe less than $250,000 in taxes. You may be able to set up an installment agreement without providing a financial statement or substantiation if your monthly payment proposal is sufficient. You may also be able to set up an installment agreement without a notice of federal tax lien filed by the IRS if you only owe for the 2019 tax year.
Flexibility for an offer in compromise
The IRS has offered more flexibility for taxpayers who have an accepted offer in compromise but are temporarily unable to meet the payment terms due to COVID-19. You may be able to request a suspension of your payments, a revision of your payment plan, or a reinstatement of your offer if it was terminated due to non-compliance.
Automatic addition of new tax balances to existing installment agreements
The IRS has allowed certain taxpayers who have an existing direct debit installment agreement to automatically add new tax balances to their agreement without defaulting. This applies to individual and out-of-business taxpayers who owe less than $250,000 in total.
How to Apply for the IRS Debt Relief Program?
To apply for any of the options under the IRS debt relief program, you will need to:
- File all your required tax returns and make all your required estimated payments
- Contact the IRS and request the option that suits your situation and eligibility
- Provide any information, documentation, or payment that the IRS requires
- Comply with the terms and conditions of the agreement or resolution
- Stay current with your future tax obligations
You can apply for some of the options online, such as an offer in compromise or an installment agreement. You can also use the Offer in Compromise Pre-Qualifier Tool to confirm your eligibility and prepare a preliminary proposal. For other options, you may need to call, mail, or visit the IRS. You can find more information and instructions on the IRS website.
Do You Need a Tax Settlement Firm to Apply for the IRS Debt Relief Program?
No, you do not need a tax settlement firm to apply for the IRS debt relief program. You can apply for any of the options yourself, as long as you meet the eligibility criteria and follow the instructions. However, some taxpayers may prefer to hire a tax professional to help them with their tax debt issues. A tax professional can:
- Advise you on the best option for your situation and eligibility
- Prepare and file your tax returns and other forms
- Negotiate with the IRS on your behalf
- Represent you in audits, appeals, or court cases
- Protect your rights and interests
However, not all tax professionals are qualified or authorized to represent taxpayers before the IRS. Only enrolled agents, certified public accountants, and attorneys can do so. These are known as Circular 230 practitioners, and they must adhere to certain ethical and professional standards. You can verify their credentials and status on the IRS website.
If you decide to hire a tax professional, you should:
- Check their reputation, reviews, ratings, complaints, and credentials
- Ask for references and testimonials from previous clients
- Ask for a written contract and fee agreement that clearly states the scope of services, fees, and refund policy
- Avoid any firm that charges upfront fees, makes false promises, or guarantees a specific outcome
- Communicate regularly with your tax professional and monitor the progress of your case
- Verify any information they provide to the IRS directly
In conclusion, IRS tax settlement firms are for-profit organizations that offer to negotiate with the IRS on your behalf to reduce your tax debt or monthly payment. However, not all of them are legitimate or trustworthy, and some may charge high fees or use deceptive practices. You should do your research before hiring a tax settlement firm and always verify any information they provide with the IRS directly.
The IRS debt relief program is not a specific program offered by the IRS, but rather a general term that refers to the various options that the IRS provides for taxpayers who owe back taxes. These options include an offer in compromise, installment agreement, penalty abatement, currently not collectible status, and other forms of relief for COVID-19-impacted taxpayers. You can apply for any of these options yourself or with the help of a qualified tax professional.