Taxpayers who find themselves stuck in the mire of tax indebtedness often despair, believing there is no way out. Fortunately, the reality is otherwise, for a whole array of Internal Revenue Service (IRS) tax debt relief strategies is available and accessible to delinquent taxpayers. The choice of the appropriate tax relief method will depend on applicable penalties, the individual's particular financial situation, and the amount he or she owes. To obtain a favorable resolution of their tax issue and to re-establish good standing with the IRS and regain credibility in its eyes, taxpayers may rely on one of the following
tax debt relief measures:
1. Partial Payment Installment Agreement
Pursuant to this relatively new debt management program, taxpayers enter into a long-term payment plan to pay their debts to the IRS at a lower dollar figure. Upon satisfaction of the terms of the partial payment installment agreement, the IRS forgives the remainder of the
tax debt.
2. Not Currently Collectible Or 'Undue Hardship' Status
To be declared "currently not collectible", taxpayers may provide evidence to the IRS that they have no ability to pay. Upon issuing such a declaration, the IRS must cease, for a year or so, all activities to collect on the tax debt.
3. Penalty Abatement
Taxpayers who utilize this
tax service method will be granted a waiver of the interest or penalty accompanying their tax bill. They will solely be responsible for payment of the tax bill. The interest and penalty are abated. Reasonable cause constitutes one of the most commonly relied-upon grounds for abatement. The IRS grants relief if the taxpayer establishes reasonable cause, namely that he or she exercised ordinary prudence and care in assessing his or her tax duties but was unable to pay the entire amount due. To be eligible for penalty abatement, individuals must demonstrate to the IRS a plan or commitment to repay their debt. Any one of the following events or incidents may constitute reasonable cause:
- Grave illness or death
- A lengthy unemployment period
- Loss of income
- Service error
- Official disaster area
- Inability to obtain records
- Natural disaster, fire, casualty, or other catastrophe
- Erroneous advice from the service
- Erroneous advice from a tax advisor
4. Filing A Bankruptcy Petition
Taxpayers may qualify for a discharge of their tax debt under Chapter 13 or Chapter 7 of the Bankruptcy Code. They may either file 1) a Chapter 13 petition, in which they will be provided with a payment plan to pay off some of their debts, with the remaining portion being discharged or 2) a Chapter 7 petition, which would allow them to discharge in full any allowable debts.
5. Offer In Compromise
Taxpayers may enter into an Offer in Compromise with the IRS. This is an extremely effective tool to reduce tax debt or eliminate it altogether. Through this program, individuals can settle their tax debts for a lesser amount than what they owe. They are required to comply with either a short term or lump sum payment plan to repay their IRS tax debt at a reduced dollar figure. In sum, taxpayers promise to 1) pay the sum outlined in the Offer in Compromise and 2) timely file their tax returns and timely pay their taxes for the next five years.
6. Installment Agreement
Taxpayers who cannot afford to pay the full amount of the tax debt due and who are not eligible for an Offer in Compromise may choose to enter into an installment agreement with the IRS. Either the taxpayer or his or her tax attorney may negotiate such an agreement with the IRS for a monthly payment plan. An installment agreement enables delinquent taxpayers to pay off their tax debt in smaller, more manageable sums. Finally, taxpayers can select from a variety of existing payment plans for satisfaction of an IRS tax debt by way of installments.
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