5 Methods for Tax Debt Relief

The deadline for filing your personal tax return has been extended to May 15, 2021. Still, tax season can cause a lot of stress if you owe significant sums to the IRS. Here are five ways a bankruptcy and tax attorney can help you get tax debt relief and put a stop to the IRS’s tax collection letters.

IRS Currently Not Collectible Program (CNC)

IRS tax collectors can seize your wages, garnish your bank accounts, even invade your social security payments. However, you can hold them at bay if your family is facing financial hardship. A tax debt lawyer can help you provide documentation of your financial situation, including proof of your income and your necessary expenses, to show that you are “currently not collectible.”

When you are placed on CNC status, the IRS defers collection on your tax debts for a set amount of time. However, interest and penalties continue to accrue while you are uncollectible. The longer you put off paying the IRS, the more you will owe. An ideal candidate for CNC status is on fixed income or unlikely to return to work.

Monthly Installment Agreements

If you end up owing more than you can afford to pay in one lump sum, you can negotiate an installment agreement with the IRS to pay down your tax debt over time. Unlike other tax debt relief options, you will have to repay your taxes in full, including penalties and interest.

Depending on how much you owe and how long you need to pay off the balance, getting a monthly installment agreement with the IRS can be automatic, or exceedingly difficult. If your tax debt balance is higher than $10,000 or you need more than 3 years to pay everything off, be sure to work with a tax lawyer who can help you provide the right financial information and negotiate with the IRS on your behalf.

Monthly installment agreements are ideal for families who have a one-time taxable event, like an inheritance or the sale of an income property. However, if you anticipate owing similar amounts and facing the same problem in the future, it may not be the best choice, as the payments will begin to add up.

Offers in Compromise

The IRS also offers a formal process for resolving all your unpaid taxes together called an “Offer in Compromise” (OIC). This is a tax debt settlement, where the IRS agrees to accept less than the full balance of unpaid taxes in exchange for certainty in payment. However, you do need to be able to pay 20% of your balance with your initial offer, and offer a plan to pay the balance in no more than five payments, or through a monthly payment plan spanning the next 24 months.

The IRS is most likely to approve an OIC based on its own doubts about your collectibility status (including whether you have legal challenges available to you), or where collections would be unfair, inequitable, or create an economic hardship. As a first step, you can use the IRS’s Offer in Compromise Pre-Qualifier to see if this method is an option for you. However, if you do pre-qualify, you should work with a tax attorney to create a OIC payment plan that is reasonable and that the IRS will accept.

Appeals & Tax Court Petitions

Sometimes the IRS makes mistakes, or your tax return may not convey life circumstances that affect your tax obligations. The IRS has a variety of internal appeals processes where you can provide documentation and ask auditors or investigators to review your circumstances. When those appeals are not enough, you can also file a tax court petition, asking a federal judge to review your case.

The details of tax appeals and tax court petitions are complicated and depend on the facts in each case. If you think the IRS has made an error you should talk to a tax debt relief attorney right away to protect your right to an appeal.

Bankruptcy for Tax Debt Relief

Does bankruptcy clear tax debt? You may have heard conflicting things about whether tax debt is dischargeable in bankruptcy. In fact, some federal income tax debt can be discharged in a Chapter 7 bankruptcy if you meet several conditions, including:

  • You filed your income tax return on time
  • There was no fraud or frivolous claim in your tax return
  • The taxes were assessed at least 240 days before your bankruptcy petition was filed

You can also use a Chapter 13 repayment plan to pause the accumulation of interest on your tax debts and pay them down along with your other debts over the next three to five years. Bankruptcy may be a good choice if tax debts aren’t the only bill you are paying, or if you don’t qualify for any of the IRS programs.

Get Help Choosing the Right Tax Debt Relief Strategy for You

If you owe money to the IRS it is important to get tax debt help right away. Every day you wait, the penalties and interest on your account grows. I’m Attorney Patrick T. Williams and I have been guiding Houston-area taxpayers to get tax debt relief for over 20 years. I can help you weigh your options between filing for bankruptcy, working with the IRS, or taking the matter to court. As an attorney, CPA, and former IRS agent, I understand all the different paths you can take to get tax debt relief. Please call me or fill out an online consultation form. I’ll help you choose the right one and get started on that road today.

Categories: Bankruptcy, Tax Planning