Back Taxes Debt Solutions
Owing the IRS back taxes, or state taxes can be a stressful burden. The IRS can place liens and levies on property, garnish wages and simply take money from any bank account with your name attached - all without notice or a court order. Penalties stack up quickly adding up to 25% of balance monthly.
Below are the available solutions if you owe back taxes - don’t wait, everyday costs you more.
Installment Agreement (IA)
Can’t pay your back taxes off in a single lump sum like the IRS expects? If you receive a notice that you owe money on your income taxes, an IRS installment agreement (IA) or short-term payment plan could be the solution you need. It breaks your balance down into a monthly repayment plan, so you can pay off tax debt in a way that works for your budget. Installment agreements give taxpayers a practical way to pay off tax bills that often feel completely overwhelming at first.
120-Day Plan - Under $10,000
- Short-term payment plan (guaranteed installment agreement).
- If you owe less than $10,000 and can pay off your full tax bill, plus assessed penalties and interest, within 120 days, the IRS considers this a short-term payment plan.[1] This is also known as a guaranteed installment agreement. If you apply online, there’s a $0 setup for individuals. You have a few different payment options:
- through Direct Pay from a checking or savings account.
- electronically online or by phone through the Electronic Federal Tax Payment System (EFTPS).
- By check or money order.
- By debit or credit cards, although additional fees will apply.
Streamlined installment agreement – Over $50,000 in Back-Taxes = A 6 Year Plan
If you owe less than $50,000 and can repay the whole amount over time, you can use a streamlined installment agreement. This type of IA doesn’t require a full financial disclosure to the IRS. You won’t be required to provide extensive information about your income and assets. In exchange, you agree to repay your full balance, plus penalties and interest, within a set timeframe that you select.
- Select a repayment term of up to 72 months (6 years).
- A longer term will lower your monthly payments but increase the amount of penalties and interest you pay.
- A shorter term will increase your monthly payments but reduce your total cost.
- It’s recommended to choose the shortest term you can afford to pay.
- You can also select your payment method
- The IRS recommends Direct Debit or payroll deduction.
- If you use direct debit, the IRS will reduce or eliminate the user fee.
Owe More than $50,000 - High-debt installment agreement
If you owe more than $50,000, then you must generally use a traditional “high-debt” installment agreement. This requires a full financial disclosure. In other words, IRS will expect to review a full summary of your income, liabilities, and assets. You won’t be able to apply online. The IRS will review your financial situation to determine the monthly payments you can make over a set period.
Can’t Pay much and want to avoid a Federal Tax Lien?
The Fresh Start program did away with the past rules where an installment agreement meant the IRS would apply a Tax Lien on any property you own. Now, if you owe less than $25,000, the IRS won’t file a Notice of Federal Tax Lien. If you owe more than $25,000, you can avoid the Notice of Federal Tax Lien by agreeing to pay by direct debit or payroll deduction.
Offer In compromise: IRS Debt Settlement
Sometimes, hardships make it difficult to pay back taxes, an Offer in Compromise (OIC) may reduce your tax-debt. An IRS Offer in Compromise (OIC) is a tax debt settlement plan. It allows taxpayers to agree with the IRS to settle a tax debt for less than what they owe. Given that the IRS always seeks to collect as much of your tax debt as possible, only a fraction of OICs are accepted each year.
The OIC program gets a lot of hype in the media, but the IRS rarely settles. In 2019, of 20 million taxpayers who owed $539 billion in back taxes, only 54,225 of them applied for and the IRS only accepted 17,890. They accepted even fewer in 2020 and 2021 than in 2019.Jul 11, 2022
The Offer in Compromise program is lengthy and detailed, it involves disclosing every aspect of your finances so make sure you are a good candidate before you apply. An unsuccessful OIC only prolongs the collections statues on your debt and in turn, hands over every bit of information needed to enforce collections including your bank account information, where those accounts are, your sources of income and they know exactly where to go to get your money.
Requirements of an Offer in Compromise
- Things to consider before requesting an Offer in Compromise.
- You must be current with your last six annual income tax returns.
- You must be current with your yearly tax payments.
- As a wage earner, you must withhold enough tax from your paychecks to result in a tax return with no balances due.
- If you are self-employed, you must be current with your quarterly estimated tax payments.
Dot every “i” and cross every “T”, one mistake can cause your OFFER IN COMPROMISE to be denied with no ability to appeal.
What happens if I miss a payment while in an OIC?
You must stay fully compliant for the next five years., period. Those who do get accepted, often lose their settlement by failing to file future tax returns on time or by filing a return with a new balance due. If there is a default, the tax debt balance come back with additional penalties and interest. This is not something you want to leave to chance, work with an IAPDA certified tax debt resolution specialist to get the results you want.
Types of OIC programs
The most common OIC is called a “Doubt as to Collectability”. Meaning, the settlement you are proposing is for the largest sum of money the IRS could reasonably expect to collect from you over the life of the debt, which is typically ten years. Your current disposable income, equity in assets and future earning s potential are considered for this type of OIC.
A less common option called “Doubt as to Liability and Effective Tax Administration” Meaning, you are asking the IRS to ignore your financial conditions and instead, consider your extraordinary circumstances to favor settling your debt. The IRS looks at why you may not owe the debt or why else your debt should be settled, such as for health reasons.
Submitting an Offer in Compromise
IAPDA recommends consulting with a tax professional if you are considering an Offer in Compromise. An IAPDA certified and Licensed tax professional can confidently advise you on the possibility of your offer being accepted. They can help negotiate the terms and conditions of the agreement so having a tax lawyer to negotiate with the IRS is a huge advantage. Please contact me for a free consultation.
Innocent Spouse Relief for Back Taxes
Break free of back taxes with this unique IRS tax debt forgiveness.
What is Innocent Spouse relief?
Innocent Spouse is a status that you can apply for through the IRS. If you qualify, it means the IRS forgives your back taxes owed through joint filings. You can only get this if you can prove that your spouse or former spouse incurred tax debt without your knowledge.
But Innocent Spouse takes more than just proving your spouse filed and that you weren’t aware of the details. You must be able to show that your spouse did any of the following without fully informing you of the action.
- Failed to report income.
- Underreported income.
- Claimed deductions or credits fraudulently.
It’s up to you to prove to the IRS that your spouse acted without your knowledge or consent. That can be tricky to pull off, especially when you signed the return.
How to file IRS Innocent Spouse tax relief
- First, you must complete IRS Form 8857 – Request for Innocent Spouse Relief.
- You must sign the form.
- If you lie on it, you can face penalties for perjury.
- Once filed, the IRS will notify your spouse or former spouse, so they can provide any relevant information to the claim.
- If the IRS finds that you had knowledge of the filing issues when you signed, you won’t qualify. However, if they can find no evidence that you had knowledge of it, you receive the status.
- Once you have IRS Innocent Spouse Status, you qualify for full and total forgiveness on all tax debt owed on that filing specifically.
There are two other forms of IRS tax debt relief for spouses
1. Separation of Liability Relief
Allocates a portion of a tax debt to each spouse. Basically, instead of full tax debt forgiveness, this means you’re only on the hook for a portion of what’s owed. The IRS essentially splits liability (responsibility for a debt) between two parties.
2. Equitable Relief
If you don’t qualify for the other two, you can apply for “Equitable Relief”. This is basically the IRS agreeing that it’s unfair to hold you liable for a tax debt owed.
In addition, there is also a status called “Injured Spouse.” This happens when someone garnishes your refund on a debt solely owed by your spouse. For example, if your spouse owes child support and they garnish your joint refund, you can file for Injured Spouse.
Import things to know about “Innocent Spouse” relief
- If you’re happily married, this probably won’t work.
- Innocent Spouse has a 2-year window to qualify.
- “I didn’t Know” doesn’t work - even if you can prove you had no knowledge of income understatements or over-claimed deductions, you may still be liable. Basically, the position of the IRS is that a reasonable person in a similar situation would have known about the issues therefore, you are liable.
Need help proving you shouldn’t be liable for your spouse’s tax debt? Let IAPDA connect you with a Certified Tax Specialist who can help you today.
Qualifying for Currently Not Collectible (CNC)
Are you struggling to cover basic living expenses? CNC can help get ahead of IRS collection actions.
Currently Not Collectible (CNC) is a status that the IRS assigns to tax debt cases that they believe cannot reasonably collect. The IRS is likely to assign you “Currently Not Collectible” status, when paying anything toward your tax debt forces you into a greater hardship,
Also known as “Status 53” – named for Form 53 that must be completed to file for CNC.
Typically, those whose financial situation allows them to only meet basic living needs are eligible for CNC status and when that happens, the IRS stops all attempts to collect until your financial situation improves.
Who qualifies for Currently Not Collectible Status?
The IRS considers tax debt cases as “Currently Not Collectible” for a few reasons:
- Unable to find the debtor.
- The debtor is in a poor financial situation with no hope of collecting any of the back taxes.
The IRS regularly reviews these cases and will resume the collection process if they find that your financial situation improves. Legally though, the IRS has 10 years to collect the tax debt.
keep in mind that a CNC status does not stop the IRS from charging penalties and interest, so your tax debt increases monthly. You will be held responsible for a larger amount of tax debt when your financial situation ever improves.
How to achieve CNC status
You will have to submit to a full financial review to have your tax debt cased assigned a CNC status. The IRS will determine your ability to pay your back taxes.
IAPDA can help you find a certified, licensed tax professional to determine if you qualify for CNC. Get the professional help you need to stop IRS collection actions and wage garnishment. See if you qualify for CNC status today.
IAPDA can help you find a certified, licensed tax professional to determine if you qualify for CNC. Get the professional help you need to stop IRS collection actions and wage garnishment. See if you qualify for CNC status today.
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