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If you can’t pay your tax debt, you might be tempted to ignore those IRS notices and wait for it to go away. Fortunately, there’s a better solution. The IRS offers several tax debt relief options that can help you resolve your balance and move on with your life.
Depending on your individual situation, you might qualify for a number of different tax debt relief options. Some of the most common programs include installment agreements, offers in compromise, and penalty relief. Find out how to get IRS tax debt relief and learn about how you can qualify for tax debt forgiveness.
IRS tax relief programs allow you to resolve back taxes and penalties by finding a solution that works for both you and the agency. Although the IRS prefers it when you file and pay your taxes on time, the agency is often willing to work with you when you can only pay part of what you owe or when you need more time to pay. After all, the IRS would rather collect some of your balance than none of it.
Each of the available options within the IRS tax debt relief program has its own rules and requirements for eligibility. Take a look at some of the most common options to find out if one applies to your situation.
If you have outstanding tax debt, you’ll receive a series of notices from the IRS indicating the balance due and the steps the agency plans to take in order to collect. These IRS notices usually provide a 30-day advance warning before serious steps, like wage garnishment or tax liens, take effect.
The most efficient way to address tax debt is to pay off your balance before the IRS takes any drastic steps. If possible, pay the entire balance in a lump sum to address taxes, interest, and any penalties applied to your account. You can typically pay over the phone, by mail, or even online.
If you submit a lump sum payment, you can also avoid incurring additional penalties or interest. This means,your balance won’t continue to increase over time, so you can resolve your tax problems quickly and efficiently.
When you can’t pay your tax debt in one lump sum, you might be able to negotiate a payment plan with the IRS instead. As part of its Fresh Start IRS tax relief program, the agency allows taxpayers to apply online for installment plans, as long as they meet basic criteria:
While an installment agreement doesn’t eliminate your debt, it does offer tax debt relief. Signing up for an installment agreement and staying current on your monthly payments helps to prevent the IRS from taking additional action against you, such as seizing your wages or property.
In many cases, you might never be able to pay your tax debt, even if you manage to negotiate an installment agreement and space out your tax payments over time. If you truly can’t pay your tax debt, you could qualify for an offer in compromise, a type of tax relief that lets you pay less than your balance to settle your debt. With this solution, you prepare an offer to present to the IRS detailing the amount you can reasonably pay without entering hardship. In extreme cases, this amount can be as low as $1.
When evaluating your offer in compromise, the IRS considers your ability to pay, your income, your living expenses, and the value of your assets. If the IRS determines that the amount you offered is equal or more than the agency can expect to collect from you before the statute of limitations expires, then it’s likely to accept your offer.
The IRS offers two payment options for offers in compromise:
To apply for an offer in compromise as an individual, you need to do the following:
You can also start your application with the IRS over the phone. Use Solvable’s offer in compromise script to prepare yourself for the call and gather all the documentation you’ll need.
If you neglect to pay your taxes, the IRS may place a federal tax lien against your property, which allows the government to claim an interest in your assets. You’ll know that the IRS has taken this step if you receive a Notice of Federal Lien, which also warns creditors that the agency has a right to your assets.
A lien might not sound like a big deal, but it can have serious effects. With a tax lien against your assets, you could have trouble getting credit from banks, your small business could be forced to pay your tax debt, and the IRS can claim an interest in future assets you acquire while the lien is in place.
Although paying your tax debt balance is the best way to avoid a federal tax lien, the IRS offers other options for tax lien relief. You can have a tax lien withdrawn before your assets are seized if you meet the following criteria:
In some cases, the IRS can place a tax levy on your assets, including your bank account. By taking this step, the IRS claims ownership of your bank account and can remove funds to cover your tax debt.
Like most IRS actions, a bank account levy takes at least 30 days from the date on the notice to take effect. This means you can take steps to have the levy released and get tax debt relief before the IRS begins removing funds from your account.
The IRS is required to release the levy and allow you to pay your tax debt via a different method in the following situations:
In the event that the IRS doesn’t grant your request to release the levy, you can submit an appeal. If the IRS removed funds from your account, you can even file a case to have them returned to your account. To start an appeal or submit a claim, call the IRS at the phone number on your most recent notice.
In addition to placing a levy on your bank account or property, the IRS can file a levy against your paycheck. Known as wage garnishment, this method means that the IRS has the legal right to take a percentage of every paycheck you receive. Since the federal tax code allows the IRS to take everything except what you need for basic living expenses, wage garnishment can quickly cause serious financial hardship.
Fortunately, you can have wage garnishments stopped and get tax debt relief in the following situations:
Penalties from late tax returns and delayed payments can quickly increase your tax debt. If you can get out of paying your penalties, you can save hundreds or thousands of dollars. The IRS offers three types of penalty relief:
Filing for bankruptcy may be a last resort, but, in some cases, it can allow you to resolve your tax debt. Here’s what you need to know about bankruptcy and tax debt relief:
IRS tax debt relief can help you save money on your back taxes, but these programs aren’t the only option for putting tax debt behind you. In some cases, you can qualify for IRS tax debt forgiveness, which can eliminate some or part of your balance. If you can demonstrate to the IRS that it’s impossible for you to pay your tax debt or that you shouldn’t have to pay your balance, the IRS may be willing to forgive it.
Unlike the IRS’s tax relief programs, which offer several options for taxpayers in a wide range of situations, tax debt forgiveness is more difficult to get. In most cases, you have to prove serious financial hardship or reporting issues involving your current or former spouse in order for the IRS to forgive your tax debt.
If you do qualify for tax debt forgiveness, it’s in your best interest to apply. In the event that the IRS accepts your case and eliminates your balance, you can put your tax debt behind you once and for all.
If you’ve had tax debt for a number of years, you could have your balance forgiven more easily than you might think. The IRS can’t keep trying to collect the same back taxes from you for the rest of your life. In fact, the agency has just 10 years to collect the taxes, penalties, and interest it charges you.
If more than a decade has passed since the IRS initially assessed your tax debt, the statute of limitations expires. Which means, the IRS has to stop collection and forgive your tax debt. If your debt is close to a decade old, you might be able to continue to hold off on payment until the statute of limitations expires, especially if you work with an experienced professional to develop a plan.
Just because the statute of limitations expires doesn’t mean the IRS will automatically erase your debt, however. You’ll have to call the IRS to check that original date of assessment and confirm that the agency has stopped collection efforts.
When you file tax returns with your spouse, you trust them to report income and deductions accurately. In some cases, however, you might not find out about tax return errors until you receive huge tax bills or substantial penalties. If you don’t think you should be responsible for paying the taxes or penalties related to your current or former spouse’s mistakes, you may qualify for innocent spouse tax relief.
You could be eligible for this type of tax relief if you meet the following criteria:
To apply for innocent spouse relief, file IRS Form 8857. The IRS will decide whether you qualify and how much, if any, tax debt you’re responsible for. In most cases, your spouse will be responsible for paying the rest of the taxes and penalties. Keep in mind that certain types of tax debt, including business taxes and household employment taxes, aren’t included in the IRS’s innocent spouse relief program.
When your financial situation makes it impossible to pay your tax bill, you may qualify for currently not collectible (CNC) status. If you qualify, the IRS essentially allows you to defer your payment until your financial situation changes and you’re able to afford your tax bill. For example, if you lost your job and no longer have a steady income, you might not be able to pay your balance.
If you’re thinking about applying for CNC, it’s important to know that this status is technically temporary. The IRS reviews your financial status periodically to determine whether you can afford to pay your debt. If the agency thinks you can pay, you’ll lose your CNC status. However, if you maintain CNC status until the statute of limitations for your tax debt expires, the IRS may be obligated to forgive your tax debt.
Even if the IRS grants you CNC status, the agency has other methods to collect current and future tax debt. For example, the IRS can apply future refunds to your outstanding bill, and the agency can also place a federal lien against your property if your tax debt is over $10,000.
To apply for CNC status, you have to prove that you can’t pay your bill. Here’s how the process usually goes:
When you’re ready to apply, call the IRS using the phone number on your most recent notice or hire a tax debt relief firm to contact the agency on your behalf. Be prepared to discuss the specifics of your financial situation so the IRS can make a decision about your status quickly.
If navigating the IRS’s tax debt relief and forgiveness programs alone sounds impossible, don’t worry. Tax relief firms are available to help you understand the programs available to you, walk you through the application process, and even represent you before the IRS when necessary.
Most IRS tax relief firms can help you with one or more of the following services:
Although you’ll find countless IRS tax relief firms across the nation, not all of them are qualified to help you. To find the right company to handle your individual situation, read reviews of tax relief firms and ask the following questions:
If you can’t pay your IRS tax debt, resist the temptation to ignore it in hopes that it won’t catch up to you. Tax debt never goes away on its own, but you do have options for reducing or eliminating your outstanding balance. Naturally, the IRS wants to collect as much as possible from your balance. That’s why the agency makes several options available for federal tax relief and forgiveness.
Whether you qualify for an installment agreement that allows you to pay your tax debt over time, you negotiate an offer in compromise that lets you save hundreds or thousands of dollars, or you’re eligible for innocent spouse relief or CNC status, the IRS offers options that work for a wide variety of individual situations.
When you pursue IRS tax relief or forgiveness, remember that you don’t have to do it alone. Get help from an experienced IRS tax debt relief firm to put your debt issues behind you once and for all.
Anna is an experienced writer and editor who focuses on digital marketing, health and wellness, travel—but rarely all at once. With her background in research and the arts, Anna has a solid sense of the art of storytelling, along with a drive to gather the supporting data for those narratives.