Dealing with tax debt and the Internal Revenue Service (IRS) can be incredibly stressful and may feel insurmountable for those with especially large financial challenges. However, the IRS is often willing to work with taxpayers to resolve their debts. The available options depend on several variables, such as the amount a person owes and his or her current financial situation. A dedicated tax lawyer can help to determine the best strategies to resolve IRS tax debt.
Consider contacting an experienced tax attorney at Damiens Law today by calling (601) 957-9672 to learn more about working with the IRS to resolve your tax debts.
What to do if you owe the IRS and cannot afford to pay?
If you owe the IRS back taxes and cannot afford to resolve the full tax debt, you may have additional repayment options. Most cases of tax debt do not result in criminal penalties for tax evasion, but these debts do include financial penalties and will accumulate interest. Therefore, determining how to settle IRS tax debt must be done quickly to resolve the tax debt as soon as possible and minimize the penalties.
Some of the available repayment options include:
- Short-term extensions
- IRS payment plans
- Offers in compromise
- “Currently not collectible” status
- Undue hardship extensions
Taxpayers who owe the IRS on the filing deadline but cannot afford to pay the full debt may request a short-term extension of up to 120 days to pay the full balance. While there is no fee to request an extension, there is a financial penalty of 0.5 percent per month on the unpaid balance. A short-term extension is a good option for those taxpayers who will be able to resolve their debts within a short time.
IRS payment plans
The IRS allows taxpayers who owe delinquent taxes to set up installment plans to resolve their debts. The terms of these deals vary depending on how much the taxpayer owes and how soon he or she can be expected to fulfill the debt repayment based on the taxpayer’s current financial situation. Upon receiving a payment plan request, the IRS temporarily suspends the collections process until either approving or denying the request. If the request is rejected, this suspension lasts for only 30 days.
Payment plans are available to taxpayers who are currently in compliance with the IRS and have the financial means to resolve their tax debt but not in one lump sum or within 120 days. A taxpayer is considered to be in “current compliance” if he or she has filed all required tax returns, made all required estimated tax payments in the current year, and paid any applicable payroll tax deposits.
Offers in compromise
An offer in compromise with the IRS allows qualifying taxpayers to settle their tax debts for less than the full amount owed. In general, offers of compromise are available to taxpayers who cannot reasonably be expected to pay their full tax debt and those who would be at risk of financial hardship if they were to pay the full debt. When determining whether to accept an offer in compromise, the IRS will consider the taxpayer’s income, expenses, asset equity, and ability to pay.
According to the Internal Revenue Service, an offer in compromise will usually be approved if they believe that the amount offered is the most that the agency can expect to collect within a reasonable timeframe. Taxpayers can learn more about applying for an offer in compromise and other strategies to resolve IRS tax debt from a skilled attorney at Damiens Law. Additionally, those who wish to apply for an offer in compromise must meet the following requirements:
- Be up to date on all required tax returns and quarterly estimated payments
- Cannot be in an open bankruptcy proceeding
- Be approved for an extension for a current year return (when applying for the current year)
- Be up to date on tax deposits for the current and past two quarters (for business owners)
“Currently Not Collectible” status
Taxpayers may request that the IRS put their account into “currently not collectible” status, which temporarily delays the collection process. The IRS will ask for proof of financial status when considering this request, including income, assets, and other debts. If it is determined, based on the information provided, that the debt cannot currently be collected, the IRS may grant the request. If approved, the collection will be delayed until the taxpayer’s financial condition improves. Currently not collectible debts will, however, continue to accumulate interest and penalties until the full amount is paid.
Undue hardship extensions
The IRS allows taxpayers who are facing “undue hardship” to apply for extensions using Form 1127. When submitting this form, the taxpayer must provide information about his or her current income, assets, liabilities, and expenses. This information must show that paying the tax debt at the current time would create an undue hardship. If the application is approved, the IRS will not charge late payment penalties for the full period of the extension.
Does the IRS ever forgive tax debt?
In addition to the above tax resolution programs, there are some situations in which tax debts may be fully forgiven, according to the IRS. Generally, these debts are only completely forgiven if the IRS fails to collect the amount owed within the 10-year statute of limitations. The IRS has ten years from the start of the collection process to collect the full unpaid tax debt. After ten years, any remaining tax balance can be forgiven.
However, measuring the statute of limitations can be complicated, as this period can be paused in certain circumstances. For example, applying for an offer in compromise or filing for bankruptcy can temporarily pause the clock. Additionally, criminal offenses like concealing income or filing fraudulent tax returns do not fall under the statute of limitations, so the IRS has the right to pursue these cases after ten years.
What is the best way to resolve IRS debt?
The best way to resolve IRS tax debt depends on the unique circumstances of the taxpayer who owes the debt. Taxpayers should explore all available options to determine which option makes the most sense given their current financial situation, the circumstances of the debt, the amount owed, and other variables.
There is, however, a general process for those with delinquent taxes to go through when exploring their options. Taxpayers should first consider applying for a short-term 120-day extension. If it is not possible to fulfill the tax obligation through the short-term extension, the taxpayer should consider the undue hardship extension or request “currently not collectible” status. The IRS recommends applying for an offer in compromise only after all the other options have been considered.
Do you need a tax lawyer to resolve IRS tax debt?
Taxpayers who owe money to the IRS are free to attempt to resolve their debts on their own. However, an experienced tax lawyer can be very helpful throughout the process. Lawyers who specialize in tax matters understand the federal and state tax laws and how to negotiate with the IRS to arrive at a repayment arrangement that suits the unique needs of the taxpayer.
A tax attorney can represent his or her client throughout the debt resolution process, including meeting and communicating with the IRS, preparing important documents, and negotiating terms for repayment. Having legal help may save a taxpayer money in addition to the stress and headaches of attempting to resolve the debt on his or her own.
Are IRS tax settlement firms reliable?
The IRS tax settlement industry in general makes big promises of resolving tax debts for pennies on the dollar and has spent countless dollars on advertising for their services. However, taxpayers should be wary of hiring one of these companies. Many tax settlement firms are unreliable, and the industry is full of scams, unsavory business practices, and excessive fees. Professional guidance can be extremely helpful when attempting to resolve tax debts with the IRS, but hiring an experienced tax lawyer may be safer than going with an IRS tax settlement firm.
Contact a Mississippi tax lawyer today
If you have a significant tax debt with the IRS, you will need to understand all the available options for resolving your debt. While the IRS expects to be paid what it is owed, the agency is willing to negotiate and make arrangements that will allow the taxpayer to fulfill his or her payment obligations. The process of applying for these relief measures is often complex, and many taxpayers are denied. For this reason, many taxpayers turn to experienced tax attorneys who understand the various strategies to resolve IRS tax debt and how these strategies to reduce taxes apply to each of their clients.
If you have delinquent taxes or questions about other tax matters, consider contacting a knowledgeable tax attorney at Damiens Law today by calling (601) 957-9672 to learn more about your options.