What is Tax Relief?

Joe Valinho
Expert Contributor
Last Updated:
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What Does Tax Relief Mean and Who Qualifies for It?

 

Tax Relief means that you pay less than what you owe in back taxes. You can achieve a reduction in tax debt by qualifying for an IRS plan called ‘An Offer in Compromise.’ Only those taxpayers who are financially strained and cannot afford to pay back their entire back taxes can hope to achieve tax relief using An Offer in Compromise.

 

How Can I Get Tax Relief with An Offer in Compromise?

 

What is Tax Relief?

An Offer in Compromise is an IRS tax debt reduction program open only to those taxpayers who are in financial difficulty and can only pay for basic living expenses. Both individual taxpayers and businesses can apply for an Offer in Compromise. The amount of tax debt reduction you get depends upon your paying capacity.

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Since it is a tax debt reduction program, the IRS looks at your current and future financial condition before agreeing to reduce your back taxes. They consider your income, rental income, commissions, tips, house, car, assets, and also right to property to determine your paying capacity. Essentially, they consider your income from all sources, expenses, and asset equity.

 

If, after the financial analysis, the IRS finds that you cannot pay the full amount of your back taxes, they will reduce it to an amount that you can pay without pushing you into a financial crisis. You are said to be in a financial crisis when you cannot pay for allowable living expenses or basic living expenses. You may check the national standards for allowable living expenses for the current year online.

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What Do I Do If I’m Not Happy with the IRS’ Reduction of My Tax Debt?

 

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The IRS looks to recover the most in back taxes. However, you can negotiate the terms of an Offer in Compromise with the IRS. It is best to hire a qualified tax attorney for the negotiations because tax lawyers have the knowledge of tax laws and IRS rules, and are also experienced in conducting such negotiations with the IRS. 

 

Though a taxpayer can handle simple tax debt relief cases, in cases where you need to negotiate with the IRS or wish to get the maximum tax debt reduction possible, it’s wise to hire a tax attorney or a tax debt resolution company for the best outcome. 

 

How Do I Apply for Tax Relief under An Offer in Compromise?

 

Before applying for an Offer in Compromise, you need to have filed all your past tax returns. You can apply for tax relief under an Offer in Compromise by sending your application to the IRS along with the setup fee. Taxpayers in financial hardship can potentially get a reduction in the setup fee.

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If you apply for an Offer in Compromise, but you clearly do not qualify for it, the IRS will return the setup fee along with the application. However, the IRS will not return the initial payment you have sent with your application. They apply that to your tax debt bill.

 

Tax Relief using Partial Payment Installment Agreements 

 

Along with an Offer in Compromise, there is another IRS tax debt relief program called the Partial Payment Installment Agreement (PPIA). In a Partial Payment Installment Agreement, you pay a reduced amount in back taxes in installments. Just like in an Offer in Compromise, in Partial Payment Installment Agreement too, the IRS looks at your financial condition to determine your paying capacity.

 

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The IRS accepts resolution under Partial Payment Installment Agreement if they cannot collect full tax debt by the Collection Statute Expiration Date, but can recover some amount in tax debt.

 

Collection Statute Expiration Date is the last date until the IRS can collect back taxes. Generally, the IRS has a 10-year collection period for collecting tax debt. If they cannot do so within 10 years, they usually close the case.

 

For the Partial Payment Installment Agreement, just like in an Offer in Compromise, the IRS will consider your income, equity in assets, and expenses to judge your ability to pay. If they find that equity in assets can be used to pay the tax debt, they will seize and sell the asset(s) to fulfill the tax debt. However, they cannot use the equity in assets if doing so pushes the taxpayer into financial hardship.

 

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Misunderstandings about IRS Tax Relief Plans

 

IRS tax relief plans are for struggling taxpayers and small businesses in financial distress and cannot pay their entire tax debt. Using these IRS tax relief programs, they can resolve their back taxes and begin anew. 

 

Taking advantage of IRS tax relief plans, some unscrupulous tax relief companies use misleading advertising and sell these programs to people as ‘pennies on the dollar.’ They promise tax debt reduction to anyone who hires their service. Due to these malpractices, plans such as an Offer in Compromise and Partial Payment Installment Agreement are misunderstood by many.

 

Before you apply for tax relief programs, it is important to know whether you can qualify for them or not. Apart from tax relief programs, the IRS also has other tax debt payment plans such as Installment Agreements that allow you to pay your full back taxes in installments. You may consider applying for an Installment Agreement if you can pay your full tax debt.

 

Hiring Help

 

Tax relief may require negotiations with the IRS. There are complicated tax debt cases that are best handled by a professional. If your case is straightforward, you may not need help. However, suppose you wish to get maximum reduction in tax debt, or need to pay other loans before paying the IRS, or have any complication that requires you to hold discussions with the IRS. In that case, it is best to hire a tax attorney or a tax resolution service. 

 

Tax lawyers can help you to get the most tax relief from the IRS. Before you hire help, research well and find a qualified and trustworthy tax attorney or tax resolution company that can ease the process for you and get you maximum tax relief.

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Joe Valinho
Expert Contributor
Last Updated: