Tax Penalty settlementIf you have not filed tax returns for the year, you may be in for some administrative trouble. Maybe you are unable to pay, or perhaps your finance team made a mistake. Either way, it is essential to contact a qualified tax attorney to help you tackle this issue!

If this sounds like the state of your business, keep reading because we will cover everything you can expect from a tax penalty settlement.

Here is everything your small business should know about IRS tax settlement, payment plans, and negotiating resolution for back taxes:

Tax Penalties & Interest

Small businesses with outstanding taxes can face severe financial impacts from the Internal Revenue Service (IRS). These financial impacts include penalties for paying your taxes late, accrued interest, road-blocks on obtaining loans, and eventual seizure of personal or business assets. Tackle your unpaid tax issues head-on to limit continued interest and penalties!

Of course, there are benefits to paying your taxes on time. The IRS penalizes taxpayers for filing late AND paying late. Even if your small business cannot pay taxes on time, you should still be sure to file your tax returns on time. Some benefits of delivering your tax returns on time are that you avoid the very LARGE penalty for filing late, and you avoid the additional interest and late payment penalties on the late penalty. By filing on time, you are showing the IRS you are trying to be a good taxpayer, even if you cannot pay on time. Filing on time also helps you keep your business in a healthy financial status.

But what if you cannot pay on time? What penalties are you facing?

Penalties There are two types of tax penalties; failure-to-file and failure-to-pay. Failure-to-file penalties are given to those who did not file taxes at all or on time. This penalty is 5.0% of the tax owed per month, up to 25% of the tax owed but unpaid.

Failure-to-pay (late payment) penalties are much less, at 0.5% of the unpaid tax amount for each month or part of a month if not paid in full by the due date. If the tax remains unpaid for ten days after the IRS issues a Final Notice of Intent to Levy, the failure to pay penalty increases to 1.0% per month.

Penalties may also be applied if you fail to pay the correct estimated tax amount.


Interest is charged on all unpaid taxes starting from the due date and ending when your small business pays taxes in full. The interest payable is 3.0% plus the federal short-term rate. Do not forget that interest accumulates daily! Interest also accumulates on the taxes owed, on the penalties owed, AND on the unpaid interest. Pay your taxes as soon as possible to avoid hefty interest charges!

When you are repaying your small business taxes, any late payments are first allocated to the taxes you owe, second to the tax penalty, and finally, to interest owed.

Tax Penalty Settlement with the IRS

As stated before, always send in your tax return even if you cannot pay in full. If you have not already filed, file your small business tax return immediately! Filing your return late will result in fees and interest; however, even late-filing will start the statutory collection period clock, allow you options for arranging payment options with the IRS, and may prevent delays in getting much-needed loan proceeds.

If your business has already filed tax returns but cannot pay in full right now, you have a couple of options. First, your business can request a short delay in paying your business taxes. Second, you can work with the IRS to pay back taxes in installments. Finally, you MAY be able to negotiate an ‘offer in compromise’ with the IRS to settle your tax debt for less than you owe. Paying back taxes in an installment plan is the option of the least cost for your business.

Tax Penalty Settlement Information

The tax penalty settlement is an agreement with the IRS to extend the period of time that you have to pay back business taxes. These payment plans may help your business avoid notices of federal tax liens and tax levies. However, these agreements do not prevent your business from paying tax penalties and interest.

Pay as much money as you can upfront to avoid further penalties and interest on taxes owed. Keep in mind; all business tax refunds will be applied to the money your business owes until the total tax balance is paid off.

If your business can pay taxes within 180 days from the tax due date, you should opt for a short-term payment plan. If your business cannot pay taxes in full within 180 days, you should apply for a long-term payment plan. The long-term payment plan requires monthly installments and must be paid within 72 months.

Settlement Eligibility

How do you know if your business is eligible? Before your offer to settle your back tax debt for less than you owe can be considered by the IRS, you must (1) file all tax returns you are legally required to file, (2) have received a bill for at least one tax debt included on your offer, (3) make all required estimated tax payments for the current year, and (4) make all required federal tax deposits for the current quarter if you are a business owner with employees. Additionally, you cannot afford to pay taxes in full over the statutory collection period. Finally, you are not currently involved in bankruptcy proceedings. Generally, businesses in Virginia that owe less than $25,000 can apply for a payment plan online. However, you may still be able to apply online if you owe more than $25,000 or your business needs more time to pay the full tax debt. If your business owes more than $10,000, you will likely be required to set up automatic payments through your bank. Speak to an attorney to see if you do qualify for online settlement plans with the IRS.

Settlement Fees

There are settlement fees for settling tax disputes. The IRS charges your business user fees for setting up an installment payment program. The IRS will waive fees if you are a low-income taxpayer that agrees to set up a direct debit plan.

If you are in the midst of a tax penalty settlement with the IRS, you can learn more about your rights and responsibilities from a qualified tax attorney.

Tax Settlement Agency vs. Attorney for Tax Issues

Tax settlement agencies claim to reduce or totally eliminate your tax penalties. Oftentimes, these agencies charge high prices for minimal work. Instead, work with a law firm!

Many law firms have attorneys that specialize in IRS tax controversy and collection solutions. Ensure your selected Tax Settlement law firm specializes in working with the IRS on back-taxes as many law firms only perform tax planning.