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Tax/IRS Debt Resolution: A Quick Guide

Hutton Tax will help you preserve your quality of life and protect your assets. Book a strategy session on IRS Tax Debt Resolutions.

Tax Debt: A Common Occurrence

Many US taxpayers owe significant debts to the Internal Revenue Service (IRS). According to the latest IRS statistics, Americans owed more than $114 billion in overdue taxes, penalties, and interest in 2020.

This piece will discuss possible measures anyone with tax debt can employ to resolve their tax bill with the IRS.

 

What Happens If I Don’t Have Enough Money to Pay the IRS?

If you owe money to the IRS and don’t have enough to pay taxes, you may qualify for an online payment plan that could allow you to pay taxes owed over a certain period. A self-service online payment plan includes long-term plans typically paid in monthly payments or short-term payment plans. Bear in mind that setup fees may apply depending on the income of the person applying for these tax relief solutions.

Those who already have payment plans may qualify to use the option for the online payment plan and revise their agreements. Those who don’t qualify for this option may request an installment agreement by submitting Form 9465 with the IRS.

There are other options to obtain tax relief, such as an Offer in Compromise or a temporary suspension of collection, meaning the IRS won’t be collecting taxes until your financial situation improves. But that doesn’t mean the debt will go away.

Falling behind on your taxes can have severe financial consequences. In some cases, borrowing money to pay the tax debt may be an option since getting a loan may cost less than the penalties one may face.

IRS Tax Debt Resolution Program

It may be worthwhile to consider whether you are eligible to be in the tax debt relief program called an offer in compromise.

A large amount of outstanding debt is not ideal for both the IRS and the debtors. Therefore, the IRS implements a tax debt relief scheme to allow tax debtors to discharge their tax debt by paying less than what they owe.

Not everyone is eligible for the IRS tax relief program. This option is usually for individuals who may not have the money to pay the full amount of their tax debt at once. It is also open to people who may fall into financial hardship after paying their tax debt.

Below are some criteria that the IRS will look at when deciding whether you should be considered for their tax relief program:

  • Can you pay back the tax debt?
  • Your annual income
  • Your monthly expenses
  • Your equity in assets

The IRS may approve your offer in compromise if the amount you offer represents the best they can collect from you within a reasonable time.

To increase your chances of the IRS accepting your offer in compromise, you might want to hire a tax lawyer.

IRS Tax Resolution Strategies

If you are not eligible for the tax relief program, you can use the two options outlined below to arrive at a resolution for your unpaid taxes with the IRS.

Collaboration With the IRS

There are different ways you may engage with the IRS to obtain debt forgiveness or get a refund of unpaid taxes. Examples are setting up payment plans or making an offer in compromise.

You might also consider the IRS Fresh Start Program, which was introduced in 2011 as a mechanism to pay tax bills with punishment and interest abatement.

What is the Fresh Start Program With the IRS?

The IRS wanted to help struggling taxpayers with the Fresh Start Program by adopting more flexible Offer-in-Compromise terms. The program was designed to allow first-time tax offenders to set things right.

Allowing taxpayers to pay off their tax burden with payments that can stretch over months or several years can be beneficial. By paying off the debt, they could get back in good standing with the IRS and avoid tax levies, tax liens, wage garnishments, as well as fines, and criminal penalties.

An IRS tax attorney could help you navigate problems that come with tax debts and debt forgiveness options.

Consult With Tax Relief Companies

If you have tax debt, you may want to consider seeking professional help from tax relief companies, as they may be able to assist you with difficulties such as unfiled back taxes, federal tax lien, or audits.

However, since each firm runs differently, the cost of IRS tax settlement firms varies. So, you may want to check multiple tax settlement companies before making a final decision.

Does the IRS Forgive Tax debts?

It is very rare for the IRS to fully forgive tax debts. However, in extreme cases, the IRS may discharge or forgive older income tax debt (at least three years old) under Chapter 7 personal bankruptcy. Usually, the debtor has to also meet numerous requirements.

The IRS may also choose not to pursue the tax debt because of the statute of limitations.

How Long Can You Owe the IRS?

Under the Internal Revenue Code §6502, the IRS has 10 years to collect a tax liability from the assessment date. In other words, the IRS to go back up to ten years on your taxes. However, this also means that after ten years, the taxes that the IRS tried but could not collect would usually be forgiven.

Tax Debt Settlement Options

The following are some settlement options that the IRS may offer to help with your tax debt:

  1. Request a payment plan
  2. Delayed payment plan
  3. Penalty abatement
  4. Innocent spouse relief
  5. State tax relief programs

Each settlement option is discussed below in greater detail.

 

Understanding Your IRS Debt and Options

 

Request a Payment Plan

This option requires you to enter an installment agreement with the IRS to pay your tax debt in monthly installments.

Delayed Payment

You may temporarily postpone payment on a tax debt if you can demonstrate that doing so will put you in a financial situation where you cannot meet your essential living needs.

Penalty Abatement

The IRS will offer interest and penalties abatement on two grounds. They might provide you with a penalties abatement if this is your first unpaid debt, no questions asked.

You may also qualify if the IRS sees that the reason you were overdue on your taxes is reasonable enough.

Innocent Spouse Relief

A joint return with your spouse means the two of you are accountable for tax debts. However, in rare situations, the IRS can grant innocent spouse relief to one of the spouses if they can prove they had no idea about the tax debts.

State Tax Relief Programs

These are special tax debt relief programs offered by different states. You may need to speak with a trustworthy IRS tax lawyer to understand your options.