If you are struggling with tax liability to the Internal Revenue Service (IRS), you are probably feeling overwhelmed and confused about your options. However, failing to proactively address this financial challenge can lead to even more complex problems, including potential wage garnishment, tax levies, tax liens, refund offsets, and other consequences. Meanwhile, your tax debt may continue to grow with interest and penalties being tacked onto your balance. Fortunately, there are a number of IRS tax debt relief options that can help ease this burden. Understanding your options is the first step to resolving the debt. A knowledgeable tax lawyer from Damiens Law can discuss your options with you during a confidential consultation you can arrange by calling (601) 957-9672.
Amendment of tax return
One of the simplest ways to reduce a tax return is to complete an amendment. Your account, tax professional, or tax software program may have failed to give you all the deductions and credits you are entitled to. If this is the case in your situation, you may have paid too much in taxes or may owe less than you think. By amending your return, you can claim all the appropriate deductions and potentially reduce your tax liability.
Innocent spouse relief
Generally, when spouses choose to file their income tax returns jointly, both spouses are liable for all tax debts associated with a joint return. However, the IRS offers innocent spouse relief in some situations so that one spouse is not held responsible for the tax debt of the other spouse, even when they file a joint return. For example, the IRS may grant innocent spouse relief if someone’s spouse committed illegal acts without the spouse’s knowledge.
Partial pay agreements
A partial pay agreement can be a strategic way to pay off some of your tax debt. However, it is not widely publicized by the IRS because this tax payment option allows you make “minimum” monthly tax payments without being required to pay your entire tax bill.
Streamline pay agreements
When most people think of payment agreements with the IRS, the streamline pay agreement or installment agreement is what they think of. An IRS installment agreement is generally available to taxpayers who cannot afford to pay their entire tax debt in full at one time. After the taxpayer sets up an installment agreement, the IRS stops collection efforts. The taxpayer may also be able to have the IRS withdraw a federal tax lien.
To qualify for an installment agreement, the taxpayer must meet certain criteria, including:
- The taxpayer cannot afford to pay their entire tax debt in a lump sum
- The taxpayer does not owe more than $50,000 in tax debt
- The total tax debt must be paid within the repayment term
An installment agreement does come with some potential drawbacks the taxpayer should be aware of, such as:
- Interest continues to accrue on the account while the taxpayer is on an installment agreement
- Fees will also continue to accrue on the account while the taxpayer is on an installment agreement
- The taxpayer cannot enter into another installment agreement if they owe tax for a subsequent year, but they may be able to renegotiate the current installment agreement
- The taxpayer could not have entered into an installment agreement within the last five tax years to qualify for an installment agreement
- If the taxpayer owes more than $25,000, they have to make payments via automatic withdrawals from their bank account
Offer in compromise
The Federal Trade Commission (FTC) explains that an offer in compromise allows taxpayers to permanent settle their tax debt for less than the entire amount they owe. The IRS does not accept offers in compromise if it believes that the taxpayer can pay the full tax debt in a lump sum or through an installment agreement.
The IRS examines a taxpayer’s income, assets, and expenses to determine whether or not to accept an offer in compromise. The IRS will only accept an offer in compromise if it determines paying the full debt would cause the taxpayer significant financial hardship. Because an offer in compromise reduces the amount of tax revenue the IRS can collect, it is more difficult to obtain an offer in compromise as an IRS tax debt relief option than getting on an installment agreement. The IRS accepts less than half of applications for offers in compromise and then only some of those upon appeal.
The taxpayer must do the following to apply for an offer in compromise:
- Complete Form 656-B and Form 433
- Pay a non-refundable $205 fee
- Make an initial, non-refundable payment of at least 20% of what the taxpayer is offering to pay or their first monthly installment if they plan to make six or more monthly payments
- Be current on all their tax returns
The IRS maintains all tax liens until it accepts the offer and the taxpayer fulfills their end of the agreement. However, the IRS suspends all collection activities once it accepts the offer. Taxpayers who are in an open bankruptcy case do not qualify for an offer in compromise. If the IRS rejects the offer, the taxpayer can appeal within 30 days of the rejection date.
Currently not collectible status
Another IRS tax debt relief option for some taxpayers is to ask the IRS to place their account into “currently not collectible status.” This option is only available for taxpayers who cannot pay their living expenses and taxes. The IRS can request that the taxpayer provide more detailed information about their financial situation. This option may allow the taxpayer to have some time to figure out how to pay their tax debt without worrying about collection activity.
Before deciding to temporarily delay collection activity, the IRS may request the taxpayer complete information and provide proof of their financial situation.
Some drawbacks to this option include:
- It is not a permanent solution to resolve tax debt
- The IRS can review the taxpayer’s financial situation periodically to determine if their financial situation has improved and they can now pay their taxes
- Interest continues to accrue on the account
- The IRS can still file a tax lien against the taxpayer
One of the difficult things about tax debt is that unpaid taxes accrue interest and penalties. These can easily double or triple a tax bill, making it even more difficult to pay off the debt. However, the IRS does offer penalty abatements in some situations. A penalty abatement lets the taxpayer off the hook for these penalties.
The IRS allows for penalty abatements when there is “reasonable cause” for late tax payments. This is a broad standard and relies on the taxpayer presenting a compelling case about why they did not pay the tax debt. Such reasonable cause may include:
- An IRS error
- Identity theft
- Unavoidable delay
- Serious injury or illness
In some situations, a person may have assets that they would like to sell to pay off their tax liability, or they would like to refinance their mortgage to free up cash to pay on their tax account. However, when the IRS places a tax lien on the property, it can be difficult to do these things.
A taxpayer can request a lien discharge or subordination so that they can get a new loan or refinance their mortgage.
If the taxpayer would suffer a significant financial hardship because of the overdue taxes, they may be able to qualify for some debt relief under a hardship theory.
Many people mistakenly believe that tax debt can never be discharged through bankruptcy. However, bankruptcy can sometimes eliminate all or part of a person’s tax obligations, typically when the income tax due was reported on returns due at last three years before the taxpayer filed bankruptcy. Even if the taxpayer cannot discharge their tax debt through bankruptcy, they may be able to discharge other debt with bankruptcy and free up funds to pay down their tax debt.
How a tax lawyer can help
Dealing with past-due taxes can be a frustrating and frightening experience. You may have already started receiving notification letters detailing thousands of dollars in back taxes, interest, and penalties. Knowing what to do next can be difficult and may stall many people in their tracks. Unfortunately, the longer you do nothing about the situation, the worse the situation can get.
A knowledgeable tax lawyer will be familiar with relevant tax laws and be able to make suggestions based on your particular situation. The tax lawyers with Damiens Law can review the IRS tax debt relief options available in your case and make suggestions for the option that is most appropriate for you. Our tax lawyers can answer any questions you have and address your concerns.
Contact Damiens Law for help understanding your IRS tax liability relief options
If you are behind on your taxes and believe you may qualify for one or more of the IRS tax debt relief options discussed above, you might consider contacting a tax lawyer from Damiens Law for help. A tax lawyer can review your particular situation and determine the options that might be available to you. Additionally, a tax lawyer can communicate on your behalf so that you do not say anything that might harm your chances of being approved for tax debt relief. They can also take proactive steps to avoid the harsher collections activities by the IRS, such as the garnishment of wages or levying of your assets.