What is Tax-Debt Relief
What is Tax Debt Relief?
The broad concept of tax-debt relief encompasses many options. Each option is designed to bring the IRS and taxpayers in debt the closest possible. (We'll talk about state and local taxing authorities later.)
A payment plan or a settlement of your debts is the most common form of relief. Also known as an offer in compromise, The financial situation of the tax-debtor will determine which one is best.
Who could be eligible for tax-debt relief
- Taxpayers who are behind in their payments and don't have the funds to pay off their debt via personal loan or home equity loan, credit card, investments, etc.
- Private debt collectors employed by the IRS have brought taxpayers in arrears to their attention.
- Individuals who have not filed tax returns in any number of years but have managed to operate below the radar of IRS.
- The IRS has directed the State Department to cancel, revoke, or confiscate passports of taxpayers who are so seriously indebted ($50,000 or more).
The IRS has programs available for taxpayers who are in default. The taxpayer can initiate any of these programs by themselves. To help consumers navigate the rules of the tax agency, there is a tax settlement industry.
Advertisements often feature players with impressive credentials and experience. Pay attention.
Although many tax settlement companies boast a list of ex-IRS agents and other tax experts who are available to help you reduce your owes, the truth is that there is more to it than this. Low-wage customer service representatives are the most common members of tax settlement companies. They have a limited amount of expertise.
A tax settlement company is a company that will:
- Find out why the customer is late or has not filed.
- Get the correct financial information from your customer
- Give a realistic assessment about what the company can accomplish
- The best IRS program available to help troubled taxpayers
- A reasonable flat fee will be charged
IRS Relief Options
The IRS offers several options to delinquent taxpayers, including payment plans, offers of compromise, and filing as not currently collectible.
Installment agreements work in the same way as any other loan. You pay a fixed amount each month for some time (up to six-year) until you have paid your tax bill. An installment agreement does not allow for the accrual or payment of penalties. However, interest is charged as a loan. There will also be processing fees.
You can apply online for an installment agreement if you owe less than $50,000 in taxes, interest, penalties, and combined taxes. Installment agreements have the upside of avoiding liens, levies, and garnishments.
If a taxpayer can show that they cannot pay the entire amount due now or over time, they may be eligible for an offer in compromise (OIC). This is an agreement to settle tax debts for less than the amount owed. The IRS considers many factors such as the ability to pay, income and assets, as well as income and expenses. The IRS will generally accept an offer in compromise if the amount offered is the maximum it can collect within a reasonable time.
All applications must include a 20% deposit and a $186 non-refundable fee.
Accepted offers in compromise may be paid in one of two ways. One is a lump sum or in monthly installments. An OIC should not be your first choice, as the IRS is unlikely to accept them, despite some advertising by tax relief companies suggesting otherwise.
Delinquent taxpayers with little or no income after paying essential expenses such as rent, utilities, groceries, and commuting can be eligible for a deferral. The IRS will stop collecting taxes if it deems them "Currently Not Collectible". This gives the taxpayer some breathing space and allows him or her to be free from the threat of having the IRS breathe down his neck.
There are also downsides. The tax debt will not be paid; it will accrue interest and penalties and the IRS could file a lien on the taxpayer's property (which appears on credit reports). Taxpayers who expect a refund in the future can forget about this; the IRS will apply them to past-due taxes that remain unpaid.
IRS Forgiveness Program
The IRS's Fresh Start Initiative used installment agreements and offers-in-compromise to lure troubled taxpayers into compliance. But the expanded program makes it even easier to apply for installment programs or offer in compromise settlements.
Here are some highlights:
- Offers that are paid off in less than five months will not be considered. The IRS now considers only one year's future income instead of four when assessing the taxpayer's reasonable collection capacity. The IRS considers only two years of future earnings for longer payoffs, six to 24 months (down from five).
- The IRS increased the Allowable Living Costs calculation to include bank fees and credit card payments.
Penalty and Interest Reduction
Although it doesn't often happen, in some rare cases, the IRS might offer penalty abatement to delinquent taxpayers who can demonstrate a hardship. The IRS's First Time Penalty Abatement policy allows it to grant administrative relief to taxpayers who fail to file returns, pay taxes on time or deposit them.
These are the criteria that the agency uses to determine eligibility:
- Either you didn't have to file a previous return, or you don't have penalties for the three prior years in which you have assessed a penalty.
- You have filed all required returns.
- You have either paid or arranged for payment of any tax.
Interest abatement is more restricted and rarely approved.
However, no relief will eliminate the tax billowed. The failure-to-pay penalty continues to accrue until the full amount of your tax has been paid. You don't want to be denied partial relief. It may be better to wait until the full amount of the tax is paid before you apply for the first-time penalty reduction policy.
Other options for debt relief
If you are truly in crisis and if there are several provisions, older income tax debts (at least 3 years) can be discharged through Chapter 7 personal bankruptcy.
The statute of limitations allows you to discharge tax debt. After 10 years, taxes that the IRS attempted to collect but was unable to collect are erased.
Consult a trusted tax debt relief service to avoid extreme measures. They may be able to help you with bank account seizures, liens, wage garnishments, and other issues.
Signs that a Tax-Debt Relief Scam is in Your Face
There are predators, as with every industry, especially when it comes to dealing with panicky, desperate clients.
This is also true for tax debt relief.
Don't fall for the hype. For most tax debtors, getting out of trouble is impossible for pennies per dollar. Next, do your homework. Look beyond the advertisements for impartial-observer ratings of legitimate tax relief businesses. Be aware of when to avoid dealing with bad actors.
These are signs that a tax debt relief company may be trying to scam you:
- It is a sign of a major indicator that the company will demand payment before they do anything.
- Offering a promise of a dramatic reduction in taxes for customers upfront
- You can pledge to reduce or eliminate penalties and interest.
- Failing to ask the client why he is behind the IRS
- Failure to assess your financial history thoroughly (which the IRS will certainly do before it approves any OIC); any company that does not take the lead here likely can't or won't help you.
- You can contact us directly by email or letter.
- Delaying tactics include repeatedly asking for the same documents.
- After waiting months and paying in, you are finally told that your debt relief window is closed or that your OIC application was rejected by the IRS. Often, these companies have done nothing but take your money and keep you on the hook.
Horror stories can add insult to injury. Taxpayers who signed up with a tax relief company and paid thousands of dollars upfront fees complained to the Federal Trade Commission regarding unauthorized charges on their credit cards or withdrawals from their bank account.
Innocent Spouse Relief
The IRS is sympathetic to spouses and former spouses who find themselves in the middle of back taxes. Joint returns can make both spouses liable for any tax owed. However, in some cases, one partner may be exempt from any penalties, interest, or taxes.
The spouse must meet the following criteria to be eligible:
- Filled joint return that incorrectly understates tax liability directly to the spouse
- Must not have known about the error
- Once the IRS has been identified, it must agree to release the innocent spouse from the tax dispute
- Within two years after the IRS begins the collection, the spouse must request relief
State and Local Taxes
It is quite different to fall behind in your state or local taxes. Although many states and local taxing authorities offer similar programs to the IRS for debt settlement, there are important differences. Some states allow waiver of interest but not penalties. Other states allow the reverse. You may get different results.
Contact your state's comptroller for more information. For a complete list of state treasurers, comptrollers and auditors, visit nasact.org
The IRS has many tools they can use to make you pay your tax debt. They have the power to place a lien on your property and garnish your wages. They have the power to seize money from your bank accounts and hold your refund. In some cases, they can even cancel your passport. It can be difficult to get your money back if the IRS or another state agency begins exercising its power over you. The sooner you get rid of the IRS, the better.
Here's how TaxAudit can help you with your tax debt relief.
TaxAudit offers tax debt relief. We work with you to engage the IRS and state agencies to find a way to pay off your debt. It all depends on how much you owe and what your financial situation is.
The IRS will examine your ability to repay the debt. The IRS can settle your debt for less if you have financial hardship. They would prefer to get a little more than nothing in many cases. We can often get the IRS to cooperate with you, even if your ability to pay is very high. We can often remove penalties and stop wage garnishments. We can help you set up a payment plan with IRS.
A professional tax relief company will create a customized tax debt relief plan for you to get the most tax debt relief.
Many solutions exist to tax debt. It can be time-consuming and difficult to find the right solution for you. Top tax professionals have decades of experience in dealing with the IRS. They will find the best solution for you.
Here's how it works:
Step 1: Free Consultation
To request a complimentary consultation, call 855.893.2308. You will not be speaking to a salesperson during your free consultation. Instead, you will be speaking with a licensed tax professional. The tax professional will listen to you and give you a general overview of your tax debt story. You will know if the expert can reduce, or even eliminate, your tax debt by the end of the conversation.
Step 2: Compressive Assessment
TaxAudit is qualified to help you. The next step is a comprehensive assessment of your financial situation. Based on an in-depth assessment of your financial situation, your tax professional will create a realistic plan to combat your tax debt. Before the assessment can begin, your tax professional will request information from you and any documents. The tax professional will then create a plan to help you get the best tax debt relief and share this with you. Your tax professional will then give you a flat-fee quote for the tax company to complete the services described in your action plan. After your assessment is complete, you will receive a customized plan that addresses your tax debt situation as well as a flat fee quote to perform the services recommended in your case.
Step 3 - Resolution
After you accept the tax company’s quote for Tax Debt Relief, your tax professional will begin to work on your case. Your tax professional will prepare all necessary paperwork and submit it to the IRS. Your best interests will be protected during negotiations with the IRS. He or she will keep you informed about the progress of your case from the beginning to the end.
What is the IRS Debt Forgiveness program?
For taxpayers who owe taxes unpaid, the IRS offers many relief options. The circumstances surrounding your unpaid tax debt will determine whether you are eligible for each option. Here are some examples of forgiveness and relief options.
- Installment Agreements allow you to reduce your tax debt by paying in smaller amounts if you're unable to make a full payment. The average repayment period is 72 months. If you owe less than $50,000 in combined taxes, penalties, interest, and tax, this option may be available to you.
- Innocent Spouse Relief allows qualified candidates to avoid penalties stemming from tax fraud or inaccuracies that they did not know about.
- Offer in Compromise (OIC) is a settlement option that allows some taxpayers to pay much less than they owe the IRS.
- Currently not Collectible (CNC). status is basically a "clean slate", program for people who can show they cannot pay back tax debt.
IRS tax debt forgiveness cannot be granted automatically if you meet all the requirements. Fill out the IRS debt forgiveness form.
The IRS will not consider your eligibility for tax relief benefits unless you have filed all of your tax returns. When assessing your eligibility, the IRS will not consider the fact that you filed tax returns late against yourself. If you are still unfiled, it is a good idea to get current.
How does tax debt forgiveness work?
To determine which forgiveness plan is right for you, we will consider your financial situation. These are the steps to an IRS debt forgiveness program:
- Acceptance to the right program after applying
- Consent to keep current with all tax returns going ahead
- Accepting all terms and conditions set forth by the IRS regarding totals due, penalty abatement, and payment terms
- Accepting that the IRS periodically reassesses your financial situation
- Payment plan or a lump-sum payment to pay off full or amended debts
Based on your financial situation, and your tax debt, the IRS will calculate how much you must pay. The first step in determining if you are eligible is to apply.
Who is eligible for IRS tax debt forgiveness? What Do I Need to Qualify for IRS Tax Debt Forgiveness?
Without consulting a tax professional, it can be hard to determine if you are eligible for debt forgiveness. If you haven't paid your entire tax bill because of financial hardship, the IRS may be willing to make an agreement with you. These are the key factors that the IRS considers:
- Tax balances below $50,000
- A single filer income cap of $100,000
- For married couples filing jointly, there is an income limit of $200,000
- Self-employed people will see a 25 percent drop in their net income
Nearly all applicants will be approved to an IRS repayment agreement. Repayment may not be the best choice for you. An Offer in Compromise, or currently noncollectible status may allow you to pay less overall. Both of these options will require you to provide financial information to IRS. You don't want to present any information that could contradict your claim that your tax bill is unpayable.
Is the IRS ever willing to forgive tax debts?
Although it is unlikely that the IRS will ever completely forgive tax debt, accepting into a forgiveness program can help you avoid the costly, credit-wrecking penalty that comes with tax debt. If you can show hardship, your debt may be completely forgiven.
What is the Fresh Start Program with the IRS?
Officials at the IRS recently introduced the Debt Forgiveness Act, making it easier for taxpayers seeking relief. All of the options that we have covered in this article are available through the IRS Fresh Start Program. The program also allows you to have a federal tax lien removed if your request is granted.
Find out if you are eligible for IRS debt forgiveness
The Tax Group Center is the place to go if you have a tax debt hanging over your head. You may be eligible for the Fresh Start Program. You may start by completing unfiled tax returns.