What is Tax Settlement?
When it comes to debt, it can often feel impossible to get out from under the money that a person owes. After all, most people get into debt because they don’t have enough financial capital to begin with. On top of that, the longer a person stays in debt, the more interest and penalties they incur, causing the debt to grow and grow. In many cases, people find themselves facing an amount of debt that they simply cannot ever imagine paying back.
The IRS understands that, for some, finances can be extremely limited and getting on top of debt may very well be impossible. That’s why it offers some taxpayers tax settlement. Tax settlement allows taxpayers to negotiate with the IRS to settle, or pay off, their debt for less than the amount that is actually owed. When all is said and done, the taxpayer is debt-free, and has paid the IRS less than their total debt amount.
For example, say a taxpayer has $10,000 in tax debt. They are low income and work a minimum wage job. They barely make enough to cover their basic living expenses, and have no disposable income. There is reason to believe that they may never have enough money to pay off their tax debt.
The taxpayer enlists a tax professional for tax settlement help. That person and their tax practitioner negotiate a payment amount with the IRS that allows the IRS to recoup some of the owed money, while still allowing the taxpayer to afford their basic needs. Through tax settlement services, the taxpayer negotiates to settle their debt for $3,000 via an installment agreement, one of the tax settlement options available via the Fresh Start Program. They come out of the negotiations debt-free, and both parties leave satisfied.
What are the Benefits of Tax Settlement?
Beyond facing a lower debt amount, there are many benefits that tax relief via tax settlement provides taxpayers.
When a taxpayer is in debt with the IRS, they become susceptible to IRS garnishment of their assets or finances. One common way that the IRS collects on outstanding tax debt is by garnishing a taxpayer’s tax return. As long as a taxpayer remains in debt with the IRS, they should expect any tax refunds to be taken by the IRS to offset their tax debt. This process is known as tax garnishment.
Additionally, if a taxpayer remains in debt for an extended period of time, the IRS will begin to claim their assets through processes known as liens and levies. When the IRS levies your assets, they seize your assets and use their value to offset your tax debt. When the IRS places a lien on your property, it allows them to take legal ownership of your property. Liens can have serious, negative ramifications on your credit score.