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We can help you understand what tax relief solutions are available so that you can identify which options may best help you clear up back taxes.
Owing taxes to the Internal Revenue Service can be scary. For many people, being in debt to the IRS may not have been intentional or fraudulent. The United States Tax Code is more than 80,000 pages. With this level of complexity, it’s understandable that some people could misunderstand the tax structure. Fortunately, if you are in debt to the IRS, you can find tax relief solutions that can allow you to pay your debt or consolidate it into a smaller amount.
In the United States, the IRS has the authority to use certain strategies to collect payment from taxpayers who owe back taxes. Two of the ways that the IRS can seek to collect payment are:
An IRS tax lien helps to protect the IRS’s ability to collect money on delinquent taxes. The IRS files a lien notice at your local courthouse. The lien is a notification that the IRS controls your property and is considering that property as a possible asset. When a tax lien is placed on your property, you won’t be able to sell it. The IRS tax lien will also make it more difficult to secure financing or potentially find a new job.
An IRS tax levy goes one step beyond the lien. A levy is the process in which the IRS will freeze your banking and investment accounts, a portion of your paycheck, and seized property the IRS will sell to pay your tax debt. Any third parties must comply with these sanctions against you. These individuals include your employer, banker, and broker. If you receive any notice from the IRS you need to find tax relief solutions.
Before the IRS puts a lien or a levy against your account, you have time from when the process begins to when the IRS uses one of these sanctions. The process starts when you receive a formal letter from the IRS in your mailbox. This letter will let you know that the IRS has determined that you owe back taxes.
The final notification comes six weeks after the first notice. Once you receive your final notice, you have 30 days to appeal the IRS’s decision. Until this time, no formal sanctions will be placed on you.
One way to delay liens and levies is to pay taxes on time or to pay late taxes with a penalty. This approach will also extend the time between the first notice and when the IRS will place a lien or a levy on your property. The IRS will use any assets you have to pay off back taxes, even if it compromises your desire to maintain wealth. Therefore, it is in your best interest to be willing to work with the IRS, either by paying taxes in full or by using one of the tax debt relief solutions outlined below.
One strategy that individuals can use to pay off back taxes is by arranging an installment plan. If you don’t have the money to pay off your tax debt immediately, an installment plan will help you break up the debt into more manageable monthly payments. How many months the payment plan will continue depends on how much you owe in back taxes and your income.
If you can pay back taxes in 120 days or less, the IRS has a short-term installment plan that does not cost anything to set up. Payments are taken automatically from your checking account or a debit or credit card. You will still have to pay interest and any penalties that accrue.
If you need more than 120 days to pay off your tax debt, you can use the IRS’s long-term payment plan. You will need to pay a setup fee to participate in the long-term installment plan program, although the amount of the fee depends on whether you are on a low income, are applying online or by mail, phone, or in person, and if you are setting up direct debit from your checking account.
No matter how you pay off your tax debt with the long-term installment plan, you will still be responsible for paying any penalties and interest that accrue on the account. If you need to restructure or reinstate an installment plan, you’ll be assessed an $89 fee to do so. Low-income individuals can restructure or reinstate their plans for $43.
Depending on your situation, you may not have to pay the full amount of what you owe in back taxes to the IRS. With an Offer in Compromise, you can settle your back taxes with the IRS and only pay a portion of what you owe. The IRS does not want you to stay behind on your taxes forever and may work with you for an Offer in Compromise with the understanding that you will stay up-to-date with your tax bill going forward.
The IRS will base its acceptance on your ability to pay the back taxes, your income, your household expenses, and what assets you have. You’ll make an offer with 20% of the proposed settlement amount to the IRS. If the IRS accepts your Offer in Compromise, you will owe the IRS the remainder of the balance in less than five payments.
While an Offer in Compromise may not be the IRS’s first choice, the IRS will accept it under specific circumstances:
If installment plans and an Offer in Compromise won’t work for you, it is possible that the IRS Fresh Start Initiative can help. Through this federal initiative, tax relief is available for many taxpayers:
The IRS’s Taxpayer Advocate Service is a free resource available in every state of the country. If you have failed to come to an agreement with the IRS on how to handle your back taxes, you can have someone from the Taxpayer Advocate Service represent you to make a plan with the IRS. This person will advocate on your behalf to the IRS and offer tax relief solutions.
However, you want to keep in mind that any representation you receive through the Taxpayer Advocate Service comes directly from the IRS. While the representatives claim to have your best interest in their recommendations and negotiations, they receive their paychecks from the IRS. As a result, using this service may not be the best way to seek independent advice.
Some taxpayers have tax debt that the IRS may consider not collectible. In this case, the IRS will stop the collection process, remove any liens, and end wage garnishments that may be in place. Non-collectible status applies only to individuals who have experienced serious hardships. Even though you have experienced a difficult period in your life, the IRS may still not consider your situation as such a hardship.
Filing to be considered “Not Collectible” is not an option for many people. The United States government depends on tax revenue for its operations. Therefore, the IRS tries to collect on the tax debt owed to it. The IRS will deny your application to be considered Not Collectible if the agency feels that you are not eligible for this designation. Discuss this option with your tax professional to determine if you meet the needs and if this option would provide a benefit to you.
If you think that you may be eligible for this status, you should have your tax attorney file an IRS Form 433-F as soon as possible. This filing will stop the process and let you keep your property if it is accepted. You may be eligible to be considered “Not Collectible” if:
Even if the IRS agrees with you that you’re Not Collectible, you should still expect to receive an annual statement from the IRS with information about how much you owe. Since only a 10-year statute of limitation exists on tax debt from the IRS, you may not have to pay back that debt once you are eligible again. If 10 years pass since the debt started during your time in Not Collectible status, you won’t owe any money. Make sure to have a conversation with your tax debt professional to clarify what you owe, the IRS’s expectations and tax relief solutions.
One of the most effective ways to find tax relief solutions is to hire a professional tax debt relief company. The staff at a professional tax debt relief company has experience working with the IRS and with taxpayers who owe back taxes. You’ll start with a consultation where a tax relief expert learns more about your tax debt and your personal financial situation. This individual will then be able to advise you on your best repayment options and strategies.
Unlike the IRS’s Taxpayer Advocacy Service, the tax debt relief company works for you. In other words, this individual has your best interest in mind when handling your situation. You can feel confident that a tax debt relief professional will try to resolve your debt quickly and for the lowest amount possible. You can save money and get better outcomes by working with a professional tax debt relief company from the beginning. Your representative will know how to proceed, what forms to file, and how to negotiate your debt with the IRS.
A tax debt relief company can help you set up a plan that minimizes your debt’s impact on your current finances and helps you to avoid having more tax debt in the future. Some of these companies offer other services to you to help you lead a more financially healthy life. These services may include credit card counseling and financial education services.
Although this guide refers almost exclusively to federal income taxes to the IRS, most states in the United States have state income taxes as well. Many states offer similar tax relief solutions, such as installment plans. However, each state has different laws and available payment options. Depending on your specific situation, these laws and payment options may impact the ways in which your tax debt relief professional can advise you.
Tax debt can be overwhelming. Fortunately, many tax relief solutions available to you can help you repay this debt. By hiring a tax relief company, you can get the help you need to settle your tax debt and avoid more debt in the future.
At Solvable, we can help you get matched with the right tax debt resolution company. We have already matched tens of thousands of people with the best debt resolution services we can provide either through our comprehensive reviews or through an immediate match. In addition, we have a large database of articles and research about personal finance and debt repayment that you can use to become more financially savvy. Don’t let tax debt cause you stress. You can take control of tax debt with effective tax relief solutions.