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Will The IRS Settle For Less?



Do you think that given the situation that’s going on in the world, that the IRS or my state tax division would be willing to negotiate on old taxes owed, even though I’m already on a payment plan? I’d rather settle for less if it’s possible now, so I have two less obligations to worry about.

– James in New Jersey

Jacob Dayan, Co-Founder of Community Tax explains…

Thanks for the question, James. It is a great one, and extremely relevant to the times we are in right now.

The short answer to your question is yes, it is possible to renegotiate old tax debt.

Qualifying for tax debt settlement depends on your current situation

Whether or not you qualify for any given IRS program is driven by your current financial situation at the time you apply for a program. For example, let’s say you are enrolled in a payment plan, and then lose your job. Then you most certainly would qualify for some relief. Similarly, if your wages drop dramatically you would very likely qualify for relief.

In these cases, the IRS and your state tax division may both allow you to switch to a settlement plan. Due to the income loss, you can no longer reasonably be expected to repay everything you owe. Thus, you would now qualify to settle your tax debt for less, even if you didn’t qualify for settlement before.

On the other hand, if you are on a payment plan because you did not previously qualify for a settlement option, and your income is unchanged, then you likely wouldn’t qualify for a different program. Both tax offices would expect that you adhere to the agreement set.

To renegotiate, you must be able to demonstrate that COVID-19 has led to a change in your financial situation such that the previous agreement you made is no longer workable.

Consult a tax professional if decide to renegotiate

If you are finding your payment plan unaffordable, it might make sense to consult a tax professional. Any change in your financial situation means you might be in a better position now to renegotiate and settle for less.

With millions of people out of work and other facing reduced hours and pay cuts, there are plenty of taxpayers in this situation. While some may be inclined to try and stick with agreements that have already been set, that’s not doing your budget any favors. Instead, you should make sure the payoff plans that you have are in line with your current financial situation in this new normal.

You are more than welcome to reach out to my team for a free consultation, James. They would be happy to evaluate your circumstances and tell you whether or not it makes sense to pursue some new type of relief option. I hope that helps!

Consult with a tax professional to see if you may qualify to settle tax debt for less.

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