Tax Settlement: A tax settlement is an agreement between a taxpayer and the taxing authority that resolves a tax liability for a specific amount, often less than the originally owed amount. This arrangement can occur due to various reasons, such as an inability to pay the full amount or the taxpayer disputing the validity of the tax owed.
Tax settlements can take different forms, including offers in compromise, installment agreements, or payment plans. For instance, an offer in compromise allows a taxpayer to settle their tax debt for less than the total owed, typically based on the taxpayer’s ability to pay, income, expenses, and asset equity. Tax settlements are often pursued to alleviate financial strain and prevent further collection actions by the tax authority.
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