Owing federal, state or local government taxes for long is certainly not a very wise decision.
Anytime, taxation agencies can execute liens against you, which can eventually lead you to loss of
assets, foreclosure, or wage garnishments. Don’t worry, government offers several IRS tax debt
relief programs, which can help you to navigate the IRS tax maze and resolve you tax debt issues
in a better way. However, you must meet certain criteria in order to get enrolled in those tax relief
options. Read on to know more about them.
Payment Plans- Part or full installment payment and penalty abatement
From 2011 onwards, the Internal Revenue Service allows taxpayers, owing less than $25,000 to
request for an installment payment plan online. Through this installment plan, a tax payer can
reorganize his repayment arrangements and can extend the repayment of the tax debt over a period
as long as 5 years. In fact, with penalty abatement, he can waive almost one third of all penalties
assessed by the IRS as well. However, larger tax debts require the tax payer to go through different
procedures. For example he needs to visit the local IRS office or mail the application or make a
telephone call to the IRS first. IRS generally charge a setup fee for an installment plan, and its
representatives do not write off the interest and late payment penalties in any way.
An Offer in Compromise
If you have few assets and little income, taxation agencies can accept your offer in compromise.
Just like debt settlement, an offer in compromise allows the debtor to settle the tax debt for less than
the original amount owed. Ideally, the taxpayer needs to offer a lump sum of cash for settlement
of the entire debt. The IRS accepts the amount, provided they found it greater than the original
amount. To go for an offer in compromise, you need to submit substantial proofs of your financial
hardship such as your household income, monthly IRS allowable living expenses, and the assets in
your name as a tax payer.
Currently Not Collectible
If you have low cash flow, but valuable assets such as property with equity or cars with equity, or
a retirement account, it might prevent you from enrolling in OIC program. Under this scenario,
currently not collectible (CNC) status can help you to safeguard your valuable assets. Stay alert
during this procedure, as IRS can force you to liquidate your easily liquidated assets such as savings
accounts, stocks, bonds, and mutual funds accounts, before granting your CNC status.
Filing Chapter 7 bankruptcy can forgive many of your pre-existing debts, but discharge only
some of your tax obligations, which are incurred at least three years prior to filing a tax return.
However, for this you need to prove through recent tax returns that you earn less than your state’s
annual median income level. In case you earn too much money to file for Chapter 7, you can go
for Chapter 13 and can partially reimburse many of your debts and some of your tax liabilities.
The three-year rule regarding taxes still applies here, but you can work out a payment plan with the
taxation agency for newer taxes. A judge can allow you to discharge your obligation to pay older
tax bills depending upon your other debts, your assets and your current income.
