Overwhelmed by tax debt? Feeling stressed out and intimidated by the IRS? If so, don’t despair. Millions of people have found themselves in your exact situation. Falling behind on your taxes and IRS troubles are common, and these problems are nothing to be ashamed of.
No matter how impossible the situation may seem, there are solutions. In fact, the IRS offers three tax relief solutions that many Americans are unaware of. If you’re struggling to pay your taxes, you may qualify for one or more of these tax relief solutions.
Currently Not Collectible Status
Individuals who have experienced a serious financial hardship may qualify for the currently not collectible status. Consult with an experienced tax attorney, and file form 433-F with the IRS. This form notifies the Internal Revenue Service that you are currently unable to pay any bills. If you qualify for not collectible status, the IRS will temporarily suspend all collection attempts, including wage garnishments and liens. The not collectible status shouldn’t be seen as a “get out of jail free” card, but it could buy you some time and prevent you from losing your assets if you’ve suffered a serious hardship. Each year, you’ll continue to receive statements from the IRS detailing the amount you owe. Tax collection has a 10-year statute of limitations, so if your debt becomes 10 years old while you are in not collectible status, it will expire.
Many creditors will allow you to make payment arrangements when you’re struggling financially, and the IRS is no different. While the process for setting up payment arrangements with the IRS isn’t as simple as making an agreement with your local utility company, you can work with them to divide your debt into more management monthly payments. To set up an installment arrangement, you’ll need to fill out and submit form 9465. Expect to pay a fee of $43 to $105 to set up the arrangement, depending on your situation. This fee applies whether you are creating a new arrangement or reinstating an unpaid balance arrangement. Your arrangement will allow you to make your payments in a number of ways. You can pay by money, order, check, or credit card. You can also schedule monthly electronic funds transfers from your bank account or set up automatic monthly payroll deductions.
An Offer In Compromise
For those who owe large amounts of money to the IRS and have no means of paying, an offer in compromise, or OIC, may be the best solution. This option may allow you to settle your IRS debt for less than the full sum owed. This type of agreement is not for everyone, and few taxpayers qualify. If the IRS believes that you could pay off your tax debt with an installment plan or as a lump sum, you are unlikely to qualify. Typically, the IRS accepts an OIC only in these circumstances:
The IRS does not believe that you will be able to pay off the full debt amount within the statute of limitations.
There is reasonable doubt regarding the amount the IRS says you owe.
Paying the debt in full would bring undue hardship in exceptional situations. As an example, the IRS may approve an OIC in a situation in which a couple has the assets to pay the tax debt but doing so would prevent them from providing adequate care for a disabled child.
An OIC is generally only accepted if the taxpayer offers to pay the amount the IRS sees as the reasonable collection potential for a particular debt. If you plan to apply for an offer in compromise, there is a $150 application fee. If you owe money to the IRS, don’t despair. Falling behind on your taxes is stressful, but the tax relief options listed above could be solution you need to get back on track.