Can I Negotiate My Tax Debt?
So you owe money to the IRS. It happens. Maybe you forgot some deductions, had an unexpected life event that reduced your income, or your circumstances just changed. Don’t panic – you’ve got options. The IRS is actually pretty reasonable when it comes to working out payment plans. With some strategic negotiating, you can likely settle your tax debt for less than you owe.
Do I Qualify to Negotiate My Tax Debt?
Before trying to negotiate, make sure you’re eligible. The IRS typically won’t discuss reducing your tax liability until you’ve filed all required returns. So if you’ve got any late filings from previous years, send those in ASAP. The agency also expects you to stay current on estimated quarterly tax payments while resolving back taxes. As long as you’re playing by the rules, the door is open to talk.The IRS will assess your ability to pay based on income, expenses, assets and debts. If full repayment would cause serious financial stress, they may approve a reduced settlement. Just be prepared to share financial statements and other records to back up your hardship case.
-What Are My Options for Negotiating IRS Debt?
You’ve basically got two main paths here – settling for less than you owe through an Offer in Compromise (OIC), or paying it down over time through an Installment Agreement (IA). The former gets you debt forgiveness, while the latter spaces payments out to soften the blow.
Offer in Compromise
An OIC allows you to settle your tax debt for less than the full amount due. This typically requires proving to the IRS that you can’t afford your obligation and that they likely wouldn’t collect in full anyway. So expect to submit detailed financial records and explanations of your situation.If approved, you’d pay the compromised amount either as a lump sum or in smaller installments over several months. The IRS currently approves around 25% of OIC applications, so it’s not guaranteed. But it’s still worth exploring if money is super tight.One downside is that the IRS charges a $205 application fee to submit an OIC, regardless of whether it’s approved. For some folks already struggling financially, coughing up 200 bucks is a non-starter. Still, it could be a wise investment if you successfully settle your debt for pennies on the dollar.
Installment Agreement
Entering an IA essentially means agreeing to a monthly payment plan, stretching out tax payments over several years. The IRS generally approves these plans as long as the proposed monthly payment meets their expectations. Monthly amounts are tied to your disposable income, factoring in things like housing, food and medical bills.Rather than haggling over the bottom line, an IA just spaces payments out so they fit reasonably within your budget. You’ll still repay the full tax debt plus interest and penalties. But breaking it into smaller chunks helps avoid financial shock.The IRS charges a user fee to set up an IA, ranging from $31 to $225 depending on things like your repayment timeline and whether your apply online or via paper forms. Certain low income taxpayers may qualify for a reduced fee or waiver.
How Do I Start Negotiating My Tax Debt?
Honestly, trying to negotiate with the IRS on your own is tough without some guidance. Unless you really know tax law and have experience dealing with the agency, consider getting help from a tax relief service or attorney. They can walk you through the process start-to-finish.A good first step is contacting the IRS Taxpayer Advocate Service. They have offices nationwide to help taxpayers navigate IRS issues and ensure fair treatment. Their job is to understand your situation, research options and represent your case to the IRS. Best of all – it’s a free service!You can also call the IRS directly or submit an application for an OIC or IA. Just know that without professional help, something as small as a math error could derail your request. Taking the DIY path also means waiting on hold and wrestling with confusing forms and instructions alone.My advice? Connect with the tax pros at Delancey Street if you need tax debt help. Their attorneys have tons of experience negotiating with the IRS. They’ll assess your finances, determine the best strategy, handle communications and get you the best deal possible. Who knows – you might just settle for pennies on the dollar!
-What Happens If I Stop Making Payments?
It should go without saying that upholding your end of any tax debt deal is critical. If you miss payments after agreeing to an IA, the IRS can immediately rescind the agreement. Not only would you lose that manageable payment plan, but now any leverage you had to negotiate is gone.You’d also face the threat of harsh collection actions like wage garnishment and property liens. Once you default, all bets are off and the IRS plays hardball to get their money. Needless to say, remaining compliant on installment agreements or other negotiated payment plans is crucial.If your financial situation changes mid-stream, proactively call the IRS before missing payments. Explain your hardship and try re-negotiating the monthly amount or due dates. As long as you make a good faith effort to communicate openly, the IRS will likely want to keep working with you. Letting an agreement lapse unannounced, however, won’t end well.
Can Tax Debt Be Eliminated Through Bankruptcy?
Some types of federal tax debt CAN be discharged through bankruptcy – others cannot. Income tax, payroll tax and other trust fund taxes generally can’t be bankrupted away. But certain penalties may qualify for discharge, especially if the tax years date back quite a while.Whether any portion of your IRS debt is eligible for bankruptcy discharge will depend on the specifics. In any case, keep in mind that successfully petitioning for bankruptcy requires proving financial insolvency to a federal court. It’s a long and complex legal process spanning several months.Ultimately, tax experts suggest first attempting to negotiate directly with the IRS before taking the bankruptcy route. In many cases, the IRS is surprisingly willing to reach reasonable settlements or payment plans without all the legal wrangling. Filing bankruptcy also won’t necessarily free you from future IRS problems if your financial struggles persist post-discharge.
When Does My Tax Debt Expire?
Contrary to popular belief, federal tax debts do not last forever. The IRS statute of limitations generally gives them 10 years to collect after an amount is assessed. If a tax debt from 2012 went unpaid, for example, their right to pursue collection on it would expire in 2022.A couple important footnotes here:
- The 10-year clock resets anytime you make a payment, enter an installment agreement, file bankruptcy or take other formal action on that debt.
- State tax debts often carry different statutes of limitations – some as short as just 2 or 3 years.
Beware that the IRS rarely forgets or gives up collection rights before hitting that 10-year mark. And they have broad powers to extend the expiration date when taxpayers make even tiny good faith payments. Still, if you’re nearing that finish line, consulting a tax attorney is wise to ensure the agency doesn’t incorrectly prolong your obligation.Waiting out the clock obviously requires a ton of patience and essentially side-steps the question of “can I negotiate tax debt?” But for some long-overdue debts, it may actually be the path of least resistance. Just make sure you fully understand the complex rules around expiration and collection statutes before relying on them.
Am I Better Off Working Alone or With a Professional?
Honestly, attempting DIY tax debt relief rarely ends well unless your case is extremely simple. You really need an expert in your corner – someone who knows the ins-and-outs of IRS rules and negotiations. A tax attorney or reputable tax relief firm can help in so many ways, like:
-- Determining which tax debt relief programs you qualify for
- Calculating affordable payment options to pitch to the IRS
- Gathering and organizing essential financial records
- Completing required applications and paperwork
- Fielding calls and letters from the IRS
- Appealing any unfavorable IRS decisions
- Helping apply for penalty abatements
- Ensuring you uphold any negotiated agreements
When you think about everything on the line here – your financial stability, credit health, assets and peace of mind – seeking expert tax help just makes sense. Yes, hiring a pro costs money up front. But their assistance can save you exponentially more through reduced IRS payments and fewer penalties over time.
Take Control of Your Tax Debt Today
Dealing with the IRS can feel intimidating and overwhelming at times. But take a deep breath and know that you have options. Opening the lines of communication is the first step toward finding tax relief through settlement or manageable payment plans. And seeking assistance from tax debt experts can ease your stress while helping secure the best possible outcome.You’ve got this! Don’t wait another day – pick up the phone and talk to a tax relief pro who can negotiate on your behalf. Before you know it, you’ll have an affordable plan for tackling tax debt and regaining financial freedom. This year can be the year you finally break free from IRS burdens for good. You’ve got this!