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Can You Settle Tax Debt on Your Own or Do You Need to Hire a Tax Professional

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Millions of people, burdened with delinquent state and/or federal tax debt, struggle each year to find a way to get out from under their tax debt load. Filling a growing need in a difficult economy, tax debt settlement - which refers to the activity of resolving a person's tax debt by reducing the debt and/or formulating a repayment plan - has emerged to be a significant financial resource for those with tax problems. Tax debt settlement is possible since the IRS, as with many state tax agencies, has processes to address delinquent taxes and help settle tax debt. A difficult dilemma facing many people is in deciding whether it's feasible to settle tax debt on their own - or is hiring a tax professional, and paying a fee, the right choice? There are certainly situations where an individual can tackle tax debt settlement effectively on their own, but as we'll see, more often it proves wise to seek the advice and experience of a professional.

The subject of tax debt relief, understandably, is an intimidating one for most people. Tax laws are complex, and the prevailing perception is that the IRS can basically do anything they want. Most people don't realize that tax settlement programs even exist, and that options are available to help pay delinquent taxes. We all know, however, that the IRS has several weapons in their debt collection arsenal, among which are: assessing penalties and thereby increasing the amount owed, issuing tax levies, or attaching a lien to your property. The need to take action when facing tax debt problems is critical, as failing to act increases the likelihood that a tax agency will levy a penalty or pursue legal avenues.

Tax Debt Settlement Options

Understanding the available tax debt settlement options is a key requirement in determining whether it's feasible to settle tax debt on your own - or if hiring a professional makes more sense.

The "Offer in Compromise", or OIC, is a fairly complex legal agreement between an individual and the IRS. In this arrangement, you essentially make an offer to the IRS for an amount that is less than the total due. The burden of proof, however, is on you to show that you are not able to pay any more. The IRS has to be convinced that you are not able to pay more than you are offering. While the OIC can drastically reduce a person's tax obligations, the IRS denies roughly half of the OIC' they receive. The OIC process can take several months to complete, the forms are complex, and the success rate is low, hence most experts agree that a tax professional should be employed to help you navigate through this process.

The second option is an installment agreement, which is a long term payment plan that is agreed upon by the taxpayer and the IRS. Several different types of plans exist, including a partial payment plan option. People whose tax debt is less than $25,000 may qualify for an online payment agreement (OPA). An individual should be able to manage setting up an OPA on their own. However, even with an OPA, it's still a good idea to consult a tax pro in order to protect your interests. When using installment plans other than the OPA, given the complexity, individual should seek the guidance of a tax pro.

The third option is to request a payment extension. The IRS may agree to extend the time period in which a person must pay their tax obligations. 45 days is the maximum extension period, however it is possible to receive multiple extensions. This option works best for people who have manageable past due amounts owed - and can be a "do-it-yourself" request.

The Bottom Line

Tax debt problems come in various forms. From small businesses with payroll tax problems, to individuals set upon with unexpected tax liens, or people who are just not able to come up with the money to pay their tax bill in a tough economic climate, the range of tax debt problems is wide and diverse. The complexity builds depending on the amount owed, a person's current financial situation, and the type of IRS action (if any) has been taken. Clearly, each individual experiencing tax problems carries a unique set of circumstances that in turn, almost always, requires close, personal attention. While in several situations an individual may, or even should, consider settling debt on their own, most experts suggest, at the minimum, to consult with a tax professional. For people who have relatively small tax obligations, but with resources to pay these obligations in the near future, a payment extension or online payment agreement could be an acceptable resolution to the problem. Most experts, however, strongly suggest that Individuals and small business owners with facing tax liens or levies, or owing relatively large tax amounts, seek the advice and services of a tax professional. The main factors where a tax pro provides value is dealing with complex processes and paperwork, knowledge of tax laws and the IRS, and determining the optimum repayment options for a given situation.

Types of Tax Professionals

Tax professionals who can assist in tax debt settlement come in four forms: certified public accounts, enrolled agents, tax attorneys, and tax debt relief companies or agencies.

  • Certified public accountants. CPA's may or may not be experts in taxation. When hiring a CPA make sure of their qualifications regarding tax debt relief.
  • Enrolled Agents. Federally licensed and considered experts in the field of taxation.
  • Tax attorneys. Often the most knowledgeable in the area of tax law. Many tax attorneys offer their services for tax debt settlement.
  • Tax Debt Relief Companies. Specialize solely in tax debt settlement - but are more prone to consumer scams that the other professional types.

Tax Debt Relief is a big business - search the internet for tax debt relief and you'll find scores of companies, accountants, and tax attorney's vying for your business. The buyer certainly needs to beware when selecting a tax professional. When searching for a tax pro, be sure to check with the better business bureau (especially in the cases of the Tax Debt Relief Company), and compare prices among various professionals. Respectable companies should provide you with written documentation of their pricing structure. Ask questions: find out their overall tax experience, as well as their specific experience in dealing with situations the same as the one you are in.