For many people, tax debt is crippling. When a person gets behind on taxes, it may be difficult for him or her to ever catch up. The mediation process can be used to form a settlement agreement with the IRS, as well as state tax agencies, but the taxpayer must affirmatively request this measure. During mediation, the taxpayer and tax representative may reach a settlement regarding tax debt, such as:
An Offer in Compromise
In some situations, you may be able to settle your tax debt for less than you actually owe. The IRS typically only accepts this arrangement if it is unlikely that it will be able to collect the tax debt by traditional enforcement options. An offer in compromise is a great option for some taxpayers since it reduces the total amount they pay. This option is available through a lump-sum or periodic payment.
An installment agreement with the IRS allows you to make a more affordable payment to the IRS each month until your tax debt is paid off. The IRS may agree to a longer term for taxpayers to repay their debt so that they have a guaranteed payment coming in.
Typically, if you do not pay and file your taxes by the original deadline, you will be assessed additional penalties. Through mediation, a taxpayer may be able to have these penalties waived through penalty abatement. This relief may be in addition to other forms of relief, such as an installment agreement or offer in compromise.
Innocent Spouse Relief
In some situations, you may not be required to pay off tax debt such as if your spouse was responsible for the debt. You will have to meet certain guidelines, but this can be an effective way to relieve yourself of at least part of the debt.