How do IRS Tax Relief Programs Operate?

There are four primary ways you may gain IRS tax relief. In most of the programs, you will be responsible for paying at least a portion of what you owe. You cannot totally escape your obligation to pay taxes; instead, these programs work to minimize your expense so you may avoid a bankruptcy. In the case of bankruptcy, IRS debts are senior to all other debts. This means the IRS is likely to fully recover funds. However, the IRS is still willing to help you avoid the legal process because it offers the organization the chance to get funds faster.

Option 1:  Payment Plan

The IRS may be willing to offer you an installment structure to help you pay your debt to them. This is not unique to the IRS. Many lenders will be willing to work with you on a payment plan because it helps them recover funds quicker. It also helps them save money because they can stop their collections efforts against you. A payment plan is especially possible in a time of economic difficulty for your family or the nation as a whole. If you have lost your job or suffered an illness, you may find it easy to secure this option. In a recession, the IRS is also more likely to work with you.

Option 2: Tax Settlement

Settlement simply means making a one time, lump sum payment for a portion of the total amount you owe. The IRS likes this option because it allows them to totally stop collections activities against you. They are guaranteed to recover a large portion of the funds, but you still save money because you do not have to pay the amount in full. The government considers the following factors in determining your settlement:

• Your income and fixed expenses
• Your asset
• Your age

Option 3: Tax Compromise

A compromise is very similar to a settlement. It is a onetime payment to the IRS that is lower than the total amount you owe. In both a compromise and a settlement, your credit may be negatively affected. The major different between the two is the way the amount is determined. With a compromise, the IRS is mostly determining your ability to pay. This means they look at the capital you have to pay them immediately based on your investments and savings. Other factors, like your income and age, are not heavily weighted in this process.

Option 4:  Tax Abatement

Abatement is essentially tax forgiveness. You will have the opportunity to reduce your total liability or increase your deductions. This is the hardest form of relief to obtain; it is only available to people in a compromised situation due to an external factor. The most common type of abatement is emergency relief. For example, if you were a victim of a natural disaster that cost you assets and other losses, you may have a lower tax liability this year. Only people who were not responsible for their own negative financial situation will qualify under this option.