How to Settle a Tax Debt

Coping with a tax debt is hard. Depending on the amount of debt you owe, it can be crippling. If you are extremely far into tax debt, there are steps that you can take to settle the debt. Some of the steps may even decrease the total amount that you owe to the IRS.

1. Figure out how much your tax debt is. You can figure the amount of debt you have by filing a request with the IRS. The amount you owe should also be on your latest tax return. Once you figure out how much your tax debt is, you will be able to take the steps needed to settle it.


2. Find out how much of your debt that you can pay on your own. The larger the amount of money you can feasibly pay the IRS, the better off you will be. Try to get at least half of the money owed before making a settlement offer.


3. Contact an attorney who specializes in tax debts. In order to settle a tax debt, there is a lot of paperwork to fill out. The attorney can help you with this.


4. Decide what type of settlement you want to offer the IRS. You can choose between paying the amount in full or making payments on the amount owed. The attorney can help you decide which type of settlement is best for your case.


5. Complete both Form 656 and Form 433-A. Both of these forms are needed to file for a tax debt settlement. Form 656 is a form that verifies to the IRS your identity. Form 433-A gives the IRS details about your employment and assets. It is very important that both of these forms are completely correctly.


6. Find out where to send your paperwork. The IRS has many different offices. Your attorney will be able to advise you as to which one to send it too. Many attorneys include mailing the paperwork in their fees. Make sure that you include a filing fee of $150 and the first payment if you are doing a payment plan. If you are planning on doing a lump settlement, include at least 25 percent of the settlement offered.


7. Wait until your attorney or yourself receives a response from the IRS. This process can take months. In some cases, it may take up to a year. If your application is approved, you must follow the payment terms. If your application is denied, you will have to start the process over again.