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Getting IRS Debt Relief: Options to Resolve Back Taxes
Dealing with debt from the IRS can be super stressful. Let’s talk about some ways people can get IRS debt relief and resolve back taxes they owe. This stuff is confusing, with lots of legal mumbo jumbo, but I’ll try to break it down in simple terms.First off, don’t panic! The IRS isn’t as scary as they seem. If you work with them, there are options to settle your tax debt or get into a payment plan. The key is taking action – the sooner you do something about IRS debt, the more options you’ll have. Procrastinating will only make things worse.
Understanding the Root of the Problem
Before looking at solutions, it helps to understand what caused the tax debt in the first place. Here are some common reasons people end up owing the IRS:
- Not filing returns – The IRS charges penalties for each year you don’t file taxes. These penalties add up quick.
- Underpayment – You filed your return but didn’t pay the full amount owed. This results in penalties and interest accumulating.
- Audit adjustments – The IRS audited you and determined you underpaid. Now you owe the difference plus penalties and interest.
- Tax fraud – You intentionally evaded taxes through illegal means. This can lead to criminal penalties.
- Identity theft – Someone filed a fake return in your name. You have to prove it wasn’t you.
- Business tax issues – Not paying payroll taxes for employees or having other business tax problems.
The cause of the debt affects what options are available for IRS debt relief. Like if it’s from tax fraud, you’ll have a harder time getting help.
First Steps To Resolve IRS Debt
Once you know why you owe, take these steps ASAP to start resolving it:
- File any unfiled returns – The IRS can’t setup a payment plan until you’re current on filing obligations. File all unfiled returns even if you can’t pay in full.
- Respond to IRS notices – If you get a notice from the IRS, don’t ignore it! Respond within 30 days or you’ll lose certain rights.
- Hire a tax pro – Get help from a licensed tax professional like a CPA, Enrolled Agent or tax attorney. They know how to navigate IRS rules.
- Call the IRS – Talk to the IRS directly and let them know you want to resolve your debt. They can explain your options. Be patient on hold!
- Gather records – To apply for relief programs, you’ll need records of income, assets, expenses, etc. Start gathering this now.
I know talking to the IRS sounds intimidating. But avoiding them makes things worse. They actually want to help taxpayers comply, not punish them.
Options for Individuals To Resolve IRS Debt
For individual taxpayers (not businesses), here are main options to resolve IRS debt:
Payment plans let you pay off the debt over time by making monthly payments. The IRS has several types:
- Short-term – Full payment within 120 days. No setup fee but interest and penalties continue.
- Long-term – Payoff up to 72 months. Small setup fee but less penalties. IRS payment plans
- Partial pay – Pay a lump sum upfront then smaller monthly payments. Must prove financial hardship.
- Delayed collection – IRS delays collection to let your finances improve. Interest and penalties continue.
Payment plans are the easiest option but require you stick to the monthly payments. If you default, the IRS can resume collection efforts.
Offer in Compromise
An offer in compromise allows you to settle IRS debt for less than the full amount owed. The IRS considers your income, assets and expenses to determine a reasonable amount.To qualify, you must:
- Owe $50,000 or less
- Have an inability to fully pay based on financial hardship
- Have no prospect of future income increases
Offers require a non-refundable application fee and partial down payment. The IRS approves less than half of offers, so consult a tax pro first. IRS Offer in Compromise criteria
You may qualify to remove some penalties the IRS charged. Reasons for abatement include:
- Reasonable cause – Circumstances out of your control led to the penalties.
- Statute of limitations – IRS tried collecting after the 10 year limit.
- Administrative waiver – IRS delays caused you not to comply.
- First time abatement – IRS can waive penalties on a first-time basis.
Abatements provide relief from penalties but not the underlying tax debt. You must show reasonable cause for each penalty. IRS penalty relief options
Currently Not Collectible Status
If you have financial hardship, the IRS may put your account into “currently not collectible” status. This pauses IRS collection efforts and prevents tax liens or levies. Interest and penalties continue to accrue though.To qualify, you must prove you can’t pay any of the debt after paying basic living expenses. This status doesn’t make the debt go away but buys you time. IRS currently not collectible criteria
As a last resort, filing Chapter 7 or Chapter 13 bankruptcy can eliminate some IRS debt. Requirements are complex and results vary by case. Consult a bankruptcy attorney to explore this option. IRS tax debt in bankruptcy
Resolving Business Tax Debt
For IRS debt owed by businesses, some additional options include:
- Installment agreement – Businesses can enter payment plans too but terms are stricter.
- Partial payment installment agreement – Payment of a lump sum upfront followed by monthly installments.
- Offer in compromise – Businesses can settle for less than full amount but approval is rare.
- Temporarily Delay Collection – Halts IRS collection efforts for 30 days to allow time to prepare other resolutions.
- CNC Hardship – Currently not collectible status for businesses facing economic hardship. Pauses IRS collection.
- Innocent spouse relief – One spouse requests relief from joint business tax debts. IRS innocent spouse relief
Dealing with IRS tax debt is daunting but know that there ARE options to resolve it. Don’t wait – take action now by filing past due returns, contacting the IRS, and speaking with a tax professional. The IRS wants taxpayers to comply and will work with you – but you have to take the first step!