Receiving notice that you owe taxes to the Internal Revenue Service (IRS) can be draining. If your situation is relatively simple with less than $25,000 owed and you’re confident in your financial records, one option is to try to handle it on your own. Doing so will require you to learn the best strategies on how to settle with the IRS by yourself.
This may involve opting for an installment agreement or attempting to negotiate an Offer in Compromise (OIC). In any case, consulting a skilled tax lawyer will help you avoid mistakes while ensuring you negotiate the best deal with the IRS.
If you’re struggling with tax debt, have a complicated financial life, or need additional guidance, contact the capable team at Victory Tax Lawyers for a free consultation.
To help you understand your options, let’s take a closer look at the actionable steps you can take to settle with the IRS by yourself, as well as when it may be time to seek professional assistance.
How to Settle With the IRS by Yourself in 6 Steps
When it comes to resolving IRS debt, it’s imperative to be proactive. Usually, the IRS will work with you if you can show that you didn’t pay your taxes because you didn’t have the money. The agency will help you explore payment options and arrive at a compromise that’s significantly lower than your original debt.
However, things get trickier if you owe more than $25,000. That’s because the lowest payment the IRS will accept is your debt divided by 72, meaning the payment amount could still be too high for you. In these situations, a better choice would be to contact a tax relief company for help, especially if your other assets or income streams make it harder to demonstrate a reasonable need for debt relief.
To simplify the process of settling with the IRS on your own, you can divide it into the following six steps:
- Assess your tax situation thoroughly.
- Open your tax tab.
- Verify your tax returns.
- Contact the IRS.
- Verify the debt amount.
- Review your financial situation.
1. Assess Your Tax Situation Thoroughly
The dreaded moment has arrived — you’ve received a letter from the IRS telling you that you owe taxes and that you have a limited amount of time in which to pay them before the agency takes action against you. Your first step (after taking a few deep breaths) is to begin gathering the necessary tax documents. These will include your W-2s, 1099s, 1040s, and other supporting documents, such as your recent bank statements and proof of any other assets.
2. Open Your Tax Tab
To make the next steps easier, it’s a good idea to put together a physical folder or file where you can keep track of all of your paperwork. Organizing your documents can help you avoid missing key deadlines.
Using the information you’ve gathered, you can piece together a comprehensive profile of your tax situation. You’ll also want to take a close look at the IRS notice since it will offer a wealth of information.
The notice will inform you, for example, if there’s a federal tax lien on your property or if the IRS is planning on seizing assets like your bank accounts or garnishing wages if you don’t act soon. This is called a Notice of Intent to Levy. If you don’t take steps to deal with the problem, the IRS will begin collection actions.
3. Verify Your Tax Returns
Next, make sure your tax debt is accurate. Look through your returns to verify that your reported income and deductions are correct. Common errors include:
- Mistakes when totaling
- Incorrect credits claimed
- Unreported or misclassified income
- Miscalculated deductions
To spot these errors, pull up your tax transcripts via the IRS website and compare them against your tax returns. If you notice mistakes in the original filing, you’ll want to amend the returns using Form 1040-X. You also have the option of involving tax professionals to manage complex issues you don’t want to tackle alone.
4. Contact the IRS
Call the IRS to speak with someone who can help you settle your debt, either via immediate payment or by arranging smaller payments. You can contact the agency online or via its toll-free number (1-800-829-1040).
Before you do this, it’s a good idea to have all the information you need nearby, including your Social Security number, the original IRS notice, and your recent tax returns. Once you’re connected, request a detailed breakdown of what you owe.
If you’re in the midst of financial hardship, one option is to contact the Taxpayer Advocate Service and request assistance. This can help stop any collection efforts while you negotiate and make arrangements with the IRS.
5. Verify the Debt Amount
Don’t agree to any arrangements before understanding your full tax liability. Break the total down into the original tax debt (the base amount you owe), penalties, and the interest you face for every day you haven’t paid. If there’s anything you don’t understand, ask the agent you’re speaking with for clarification.
6. Review Your Financial Situation
If you apply for any type of tax settlement, the IRS will want to confirm your financial status. You’ll need to gather financial documents like pay stubs, bank statements, rent or mortgage agreements, and utility bills, as well as a detailed list of your monthly expenses.
This will help the agency understand how much you can afford to pay, whether in a lump sum or through installments. Using a spreadsheet program can simplify this process. You and the IRS agent handling your case will quickly be able to see what you can afford.
What Are IRS Settlement Options?
To help with IRS tax debt issues, the agency offers several settlement options, beginning with the Offer in Compromise. An OIC gives you a chance to settle for less than your outstanding debt, but it requires that you meet very specific qualifications. To find out whether you’re eligible for an Offer in Compromise, use the pre-qualifier tool on the IRS website. If you’re eligible, you can fill out Form 656.
Before submitting your offer, it’s important to understand that the IRS accepts only those proposals that demonstrate a reasonable ability to pay based on your income, expenses, and other assets. You’ll need to provide thorough supporting documents to prove your financial situation, helping the IRS evaluate your offer fairly. Ensuring your proposal reflects what you can realistically pay increases the chances that the IRS will accept your compromise proposal.
On the other hand, an installment agreement is a payment plan that allows you to pay down your debt in monthly installments. You can apply for an installment agreement by filing Form 9465. Make sure you know exactly how much you can pay to avoid defaulting.
If making payments would be an undue hardship on you, you can file for currently not collectible (CNC) status, which will temporarily halt any debt collection efforts. However, you’ll need to demonstrate financial hardship, which involves calling the IRS and submitting Form 433-F.
How to Submit an Offer in Compromise
For those who would still face significant difficulty meeting monthly installments, an OIC makes it possible to settle tax debt for less than the original amount. The only downside is that only a small number of taxpayers meet the criteria for OICs. You’ll need to provide lots of financial data to do so, including bank statements.
To begin the process, you must file Forms 656 and 433-A, the latter of which is for individuals. To have the best chance of succeeding, consider offering a realistic lump-sum payment.
How to Set Up an IRS Installment Agreement
To set up an IRS installment agreement, calculate what you can afford each month. The IRS has a handy online payment tool that can give you a clear idea of what you can expect to pay depending on your budget. Once you’ve calculated it, you can set up your payment plan using the same tool.
Keep in mind that while installment agreements prevent collection actions, interest and penalties will continue to pile up. If you choose this option, it can help to make extra payments when you can.
How to Prevent IRS Collections
Having liens and levies placed on your property can be devastating, so make it a point to respond promptly to any notices you receive from the IRS. Tax liens are particularly damaging, as they affect your credit. To prevent any collection actions, it’s best to work with the IRS to settle your tax debt as quickly as you can, which you can do with an installment agreement.
You can also request penalty abatement if you’ve had a serious illness or other reasonable cause for not paying your debt. You will need to file Form 843 for this.
Tips for Completing IRS Forms Accurately
If you’re concerned about accuracy, consider using the online versions of the IRS forms, which can help you ensure every field is filled in with the right kind of information. Filling out IRS forms requires a sharp eye. Even the smallest mistakes or omissions can have negative consequences.
So when filing any form with the IRS, triple-check it prior to submission to avoid delays and complications. You should also keep copies of everything you send to the IRS. If you’re nervous about how to fill out your forms, you might have to work with a professional to avoid errors and ensure every form submitted has the right details included.
When Should You Consider Settling With the IRS Yourself?
If your tax debt is minor and you aren’t subject to liens, levies, or audits, you can pursue a settlement on your own. The IRS offers detailed information on how to settle debts using online forms. This DIY approach is usually best for those who owe less than $25,000.
It takes time and patience to secure a settlement on your own, so only attempt it if you’re prepared to fill out large quantities of paperwork. Additionally, it’s important to have no urgent collection calls from the agency. You should only try to settle on your own if you have confidence in your financial records.
How to Seek Help for Settling With the IRS
Taxpayers who owe more than $25,000 to the IRS should consider working with tax debt professionals. At Victory Tax Lawyers, we have years of experience negotiating with the IRS to release or remove liens and levies as we fight to help clients resolve their debt.
Offer in Compromise: Expert Negotiation
OIC approval rates are low. Our team knows how to manage this process to give you a better chance of success. We’ll help prove that you meet the criteria and make an offer the IRS will be more likely to accept.
IRS Hardship: Relief From Collection Pressure
If you’re facing serious financial hardship, our skilled team can help you apply for currently not collectible status or any other type of assistance to stop aggressive collection processes. Too much is at stake to do it alone. Let us help you get relief.
Settling By Yourself vs Hiring a Tax Professional
Although settling a tax debt by yourself is possible, it often comes with many challenges. For instance, the IRS requires that you follow strict rules, submit the right forms, provide financial documents, and stay up to date on all your tax filings. Making a single mistake could result in the rejection of your request, sometimes without much review.
People who try to settle on their own often face delays, confusion, or denials simply because they don’t fully understand how the system works. In 2019, public data reveal that only about 33% of tax settlement requests were accepted. This shows how detrimental the outcome of an IRS tax settlement effort can be without proper guidance.
Hiring a tax professional, like a tax attorney or enrolled agent, can make the process easier and increase your chances of success. While exact numbers vary, professionals who are familiar with the IRS requirements often report much higher approval rates. Sometimes up to 75% of their settlement cases are usually recorded to be successful.
This is because they understand what the IRS looks for, can prepare strong proposals, and know how to resolve issues quickly. They also save you time and stress by handling paperwork and communicating with the IRS on your behalf. Hiring legal help does cost money. However, it can be worth it, especially if you owe a lot, have older tax debt, or feel unsure about handling it on your own.
Learn More About How to Settle With the IRS by Yourself
A DIY tax settlement is possible if you know what your options are and how the process works. However, if you owe a significant amount of back taxes or you’re facing liens, levies, or audits, you need legal help right away. For those with tax debts of $25,000 or more, professional assistance can be invaluable.
At Victory Tax Lawyers, we offer personalized strategies that begin with a full assessment of your situation. Contact us today for a free consultation.
FAQ
Here are answers to common questions about settling tax debt on your own or with professional help.
Can I Settle My Tax Debt With the IRS on My Own?
Yes, you can. The IRS offers options like payment plans, temporary hardship status, or reduced settlement offers. But you must follow strict rules, fill out the right forms, and provide detailed financial information.
How Much Can I Settle My IRS Debt For?
There’s no fixed amount. The IRS looks at what you can reasonably pay based on your income, expenses, assets, and financial situation. If they believe you can pay more, they’ll likely reject a low offer.
What Are the Risks of Doing It Myself?
Generally speaking, certain mistakes like missing documents, using the wrong forms, or offering too little can lead to delays or rejections. You might also miss out on options you didn’t know about.
How Does a Tax Professional Help?
A tax professional knows how the IRS works. They can help prepare your case properly, avoid mistakes, and even negotiate on your behalf. This can save you time, stress, and potentially money.
Is It True That Tax Professionals Have Higher Success Rates?
Yes. While success isn’t guaranteed, many tax professionals report much higher approval rates than people who apply on their own. Some claim success rates of 70–90%, compared to general rates of around 20–30% for all applicants.
How Much Does It Cost to Hire a Tax Attorney?
Costs vary depending on your case and the professional. Some charge flat fees, while others bill hourly. It’s important to ask upfront and make sure the fee is reasonable for your situation.
When Should I Definitely Hire a Professional?
You should consider hiring a tax professional if you owe a large amount, have several years of back taxes, face legal action, or feel overwhelmed by the process.
How Do I Settle Back Taxes With the IRS?
You can settle back taxes by setting up a payment plan, applying for hardship status, or requesting a reduced settlement if you qualify. The IRS will ask for details about your income, expenses, and assets. You’ll need to file all missing tax returns before they agree to any settlement. You can do this yourself if your situation is simple, but if it’s more complicated or you owe a lot, a tax professional can help you get better results.
What Happens if You Owe the IRS More Than $25,000?
If you owe more than $25,000, the IRS may place a lien on your property and start collection actions like wage garnishment or bank levies if you don’t act. You can still apply for a payment plan or other relief options, but the IRS might require more detailed financial information. In larger cases like this, working with a tax professional is often recommended to avoid serious consequences and to negotiate a manageable solution.
