Your IRS Debt Options

Once you are in compliance with the tax code, meaning you have filed all your returns and are paying tax withholding and/or quarterly estimated tax payments, then we can talk about how to handle any remaining tax liability. Let’s talk about your IRS debt options to get your taxes back on track.

Option: Ignore it.

Do not ignore your tax debt. There are many IRS debt options and this is the worst!

If you ignore your tax debt, the IRS will take drastic actions in an attempt to collect:

  • Liens will be filed

    Any titled assets (real estate, automobiles, etc.) that the IRS can find in your name will have liens placed on them. Through tax liens, the IRS will become your most-secured creditor.

  • Accounts will be levied

    The IRS will locate and take money right from your bank accounts. Any account you have access to is at risk – even if you are not the primary on the account!

  • Your income will be garnished

    If you are employed, your employer will be instructed to garnish your wages. If you are retired, your pension and/or retirement will be intercepted. Even social security income is at risk.

Option: Pay your tax debt in full, quickly.

Without question, this is your best IRS debt option.

Although it may cause a financial burden for a while, if it is at all within your ability to pay your debt off quickly you absolutely should do this! If you have any equity in assets and can use it as collateral on a loan, or still have good credit, then get a loan and pay your tax debt with it. The IRS will charge Interest on your tax debt which compounds daily and also comes with monthly late fees. The interest you will pay on a loan may ultimately cost you less. If more trouble comes your way down the road, the loan could possibly be dismissed in bankruptcy court. Your tax debt, with few exceptions, cannot be discharged in bankruptcy.

Option: Settle it!

Maybe you qualify for an IRS program known as an “Offer in Compromise.” (OIC) You have probably heard of this program. Firms that purport to be “experts” at securing an Offer in Compromise advertise heavily on TV and online.

If you choose to hire us to help you with your tax problems, we will absolutely look at an OIC as an IRS debt option for you. During the course of us working your case, If we determine that an offer may work, we will present that possibility to you. Please understand that this is rare. Statistically speaking, nobody is approved, and even when a taxpayer is approved for an OIC, the process can take up to three years.

Do not fall victim to a firm that says you “may qualify” after having a 45 minute phone conversation. Although many of the people that work for these firms have the best of intentions, their company’s business is to prey on your hope.

Many taxpayers become mesmerized by the possibility of settling for “pennies on the dollar” and they refuse to accept any other solution. If this happens to you, chances are your offer will not be accepted and you will be worse off than you were before.

Learn more about Offers in Compromise

Option: Go “Currently non-collectable” (“CNC” status)

Prove to the IRS that you are unable to pay anything at all. Prove to them that your basic living expenses meet or exceed your income; that you live in poverty and survive only with the help of good neighbors, friends, and family.

When your accounts (each tax year you owe for is a separate account in the IRS’s eyes) are put on a CNC status, the IRS stops efforts to collect the debt from you. Any garnishments placed are released.

Liens placed on property will remain, and so does your tax debt. In fact, interest and late fees will continue to build and therefore while you are on CNC status your tax debt will continue to grow.

For some taxpayers the CNC status approach makes the most sense. However, this is a temporary “solution.” As soon as your income changes the CNC status will be removed and the IRS will re-start collection activity.

Learn more about Currently not Collectible status

Option: Affordable Payment Plan

Pay the IRS back over time through a formal Installment Agreement. Nobody wants yet another monthly bill, but For most taxpayers this is the most practical option. If the IRS determines that you can pay, you will. Either work with them, or they’ll take your money forcefully. If an installment agreement is the option that makes the most sense, we want to make sure that the monthly payment amount is fair and affordable.

Learn more about Installment Agreements

Option: One of the above, and then Wait it out.

There is a statute of limitations to tax debt. The exact date a tax debt expires depends on the date the tax was assessed, and there are a few events that can occur that will extend the expiration date out further. That being said, that time limit for the IRS to collect is 10 years. Once the date comes, the remaining tax debt and its interest & penalties vanish. Remember that each tax year you owe for is treated as a separate debt and each has its own expiration date.

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