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If you owe IRS back taxes, you may be wondering if you can settle with IRS yourself of if you’ll need professional help from a CPA or tax relief company. Learn your options. If you don’t pay your taxes, the IRS will send you a bill for the unpaid balance. Your first thought might be to take care of it yourself. 

But you know what?

Unfortunately, most people don’t understand how the IRS operates. Your balance could balloon into a massive financial headache if you don’t know what you’re doing. And that can spell trouble.

Still, if you want to settle with the IRS yourself, here’s what you need to know.

What Happens If You Don’t Pay Taxes on Time?

They say the only certainties in life are death and taxes. But there’s one more thing you can add to the list: IRS penalty fees. When you don’t pay your taxes on time, charges start to add up almost immediately.

The IRS tacks on a failure-to-pay penalty of 0.5% every month your bill goes unpaid. At that rate, you want to get your tax bill sorted out sooner rather than later. You can talk to the IRS on your own.

Just know that “there are nuances and uncertainties that a normal person just isn’t privy to,” warns Sharif Muhammad, MBA, CPA, PFS, MST, and CFP®, and founder and CEO of Unlimited Financial Services, LLC. Plus, if you’re scared or not sure what you’re doing, you could make a mistake on a form or agree to something you don’t understand.

Do you know what that means? You risk making false statements to the government. And that can land you in dangerously hot water.

It’s important to have the right counsel and the right people that you’re dealing with, such as a CPA, an enrolled agent, or your tax attorney.

Sharif Muhammad

How Much Will The IRS Settle For?

If you’ve looked into tax debt relief, you’ve likely stumbled across cases where the IRS settles for less than what was owed. This is what’s known as an offer in compromise (OIC). But there’s a catch. The IRS only settles if you’re down and out.

So how much will the IRS settle for if I’m down and out?

If you get laid off, have very little assets, file bankruptcy, or are incarcerated, that’s the opportune time to go the IRS.

Sharif Muhammad

Basically, they only let you pay less if they think they can’t get any more money out of you. The IRS has ten years to collect from you. And a lot can happen with your finances over ten years.

Are You Eligible for an Offer in Compromise?

While settling might sound promising, getting part of your tax debt forgiven with an OIC might not be an option for you. Because here’s the thing, “The IRS sees an offer as a last resort”. So you may have to jump through some hoops to get the IRS to agree to settle for less than you owe.

Offer in Compromise Mistakes:

Tax relief expert (and former IRS revenue officer) Jeffrey McNeal says when he processed offers, he saw tons of mistakes made on the forms, even when prepared by CPAs and enrolled agents!  So be sure to ask an expert for help.

First, you must be current on filing your taxes. If you’re behind a year or two or four, reach out to a CPA or a tax debt relief company for help to get you up to date.

Second, the IRS won’t accept an offer if you can afford to pay what you owe.

Check out the Offer in Compromise Pre-Qualifier tool from the IRS.

Other Options to Settle Your IRS Tax Debt

If you’re not eligible for an OIC, setting up a payment plan might be the next best thing.

It might make sense to do the payment plan because you want to stop any and all collection efforts, and that includes liens and levies or wage garnishments. It doesn’t have to be significant – it could be $100 to show the IRS you’re serious about moving forward and working things out.

Sharif Muhammad

But here’s the thing:

Don’t jump into an installment agreement unless you’re sure it’s right for you.

Why not?

It could disqualify you from other tax debt relief options.

Quick tip: Once you start an installment plan, you will have a harder time qualifying for a debt reduction request later.  We recommend you speak to an expert to see if you qualify for tax relief first.

And you don’t want to miss out on any chances to settle your IRS debt. But remember: The IRS only has ten years to collect what you owe.

Depending on how big the debt is relative to the income and assets, the IRS might do a payment plan with the agreement to forgive the debt at the end of the term.

Sharif Muhammad

If you have tax debt, give yourself a break.  8% of all U.S. taxpayers are delinquent. For instance, let’s say you owe $32,000 in back taxes, and the IRS agrees to let you pay $200 a month. That’s $2,400 a year which adds up to $24,000 over ten years. That means you’ll only pay $24,000, and the IRS will forgive the remaining balance. This is known as a “partial pay agreement.”

How to Settle Tax Debt with the IRS

Can you settle with the IRS on your own? Sure, you can.

The IRS has tons of self-help articles about settling your tax debt and even a video about how the IRS collects their money. But the question isn’t whether you can settle tax debt on your own, but should you settle it by yourself.

I think it’s important to have the right counsel and deal with the right professionals because you want to make sure they’re doing their job to help you get the issue resolved.

Sharif Muhammad

You don’t want to give the IRS too much, get caught making false statements because you don’t understand a form, or miss out on any of the options available.