How to Settle a Tax Debt

Tax debts differ from most other items that appear within your credit history in that, if left unpaid, they can continue to appear on your credit report indefinitely. Once a tax debt has been paid, it will age off your credit report in seven years. The IRS is willing to settle many consumer tax debts for less than the amount owed. Choosing to settle a tax debt is wise as it ensures you will be able to avoid the negative consequences of nonpayment such as wage garnishment and property levies.

Instructions

1

Decide how much of the debt you are reasonably capable of paying. You are responsible for submitting a settlement offer to the IRS and the IRS is unlikely to accept a settlement that is only a small percentage of the original tax debt.

2

Choose between a settlement offer in which you pay periodic payments on the debt to the IRS and a lump sum settlement. The IRS makes provisions to accept both payment methods, but the type of settlement you offer will influence the initial fee payment that you submit with the settlement.

3

Complete Form 656. This is known as an Offer in Compromise (OIC) form. The OIC form contains questions to verify your identity and gives you the opportunity to offer a settlement.

4

Fill out Form 433-A. You must use this form to provide detailed information to the IRS concerning your place of employment and any assets you own. The IRS will use this information to calculate a reasonable amount you should be able to pay to settle your tax debt.

5

Prepare your filing fee. The standard filing fee to settle a tax debt is $150. You will also need to include the first payment of your payment plan or 20 percent of the lump settlement agreement.

6

Mail your debt settlement request to the corresponding IRS office. The office to which you should send the settlement offer varies depending on your employment status and the area of the country that you live in.

7

Wait for a response from the IRS. It can take several months for the IRS to fully review your forms and provide you with a decision concerning your debt settlement offer.