The IRS does allow a tax debt reduction to people who truly cannot afford to pay them. The key to getting a decrease in the money owed to Uncle Sam is found in doing a good financial analysis of a person’s situation.
It is important to understand the terminology when trying to get a tax debt reduction with the IRS because there are several settlements available to people who owe money. The importance of knowing the terminology helps a person understand which option they may qualify to get.
The most commonly known and talked about IRS settlement is called the Offer in Compromise. It has also been referred to by other names over the years such as the Offer and Compromise, the Offer of Compromise and the abbreviated version called the OIC. This option is where a person makes an offer to pay a smaller amount of money than what they owed. For instance, if someone owes $25,000 and they offer $15,000 to the Internal Revenue Service that would be an Offer in Compromise.
There is also a tax debt reduction option called the Partial Payment Installment Agreement. People also refer to it as the Partial Payment Installment Arrangement. It is also called the PPIA as an abbreviation. The basic idea behind this PPIA settlement option, which was first implemented in January 2005, is to allow people to get an installment plan set up with the government even if the installment arrangement won’t pay off their liability in full. Prior to 2005, the government would not allow a person to be on a payment plan that did not pay off the whole liability. That is why this particular settlement option is referred to as a partial payment, because a person might only end up paying a partial amount of their federal obligation and not the full amount. This option doesn’t get as much attention as the Offer in Compromise program, but it can be just as good. In many cases, the partial payment installment agreement is a better solution for people.
Another tax debt reduction option that can help lower some of the amount of money that a person owes is through the penalty abatement request. This option requires good reason for the penalty abatement, and it doesn’t always reduce a large portion of the debt owed. However, using this option will make the amount owed a little lower.
There are other settlement options that are available to people that will allow them to get square with the IRS. However these other options are not truly tax debt reduction options. A pay plan, which is also called an installment arrangement or installment agreement, is where the person gets set up on payments to Uncle Sam. They pay off the amount over time. This can lower the overall federal liability to the government in the sense that the quicker someone pays off their federal obligation, the less they will pay in compounding interest. A professional should be hired for all of these options due to the rules, regulations and overall government red tape. Getting the best settlement depends on the person’s ability to pay, so hiring a professional to analyze their financial situation is vitally important.