Here Are the Top Options and Assistance Programs to Conquer IRS Tax Debts
Financial difficulties happen to everyone, and when tax obligations become overwhelming, understanding resolution options is critical. Fortunately, the IRS offers resolution options and assistance programs that can alleviate your stress and pave the way toward financial recovery.
Acknowledging Financial Hardships and IRS Obligations
In times of financial adversity, fulfilling IRS obligations can be difficult to prioritize and might even seem impossible. However, failing to file and/or pay taxes will only exacerbate the situation, leading to accumulating penalties, interest and stress. If you do fall behind on filing and/or paying the IRS, it is important to be proactive with resolution work to mitigate further financial strain.
Understanding Tax Resolution Options
Fortunately, several options are available to assist individuals and businesses with resolving IRS liabilities:
Offer in Compromise (OIC):
The OIC program is offered by the IRS and allows eligible taxpayers to resolve their tax debt for less than the full amount owed. It's an option designed to assist taxpayers who are unable to pay their tax liability in full or for whom paying the full amount would create additional hardship.
Key Aspects of an Offer in Compromise
1. Eligibility Criteria:
To qualify for an OIC, taxpayers must meet specific criteria laid out by the IRS. This includes demonstrating an inability to pay the full tax liability or doubts about the accuracy or validity of the amount owed.
2. Forms and Documentation:
Taxpayers interested in resolving their liability via an OIC must complete and submit specific IRS forms along with detailed financial information. This financial information includes income and expense verification, asset valuations and a summary of the taxpayer’s liabilities. The purpose of providing this financial information is to allow the IRS a comprehensive overview of the taxpayer’s financial condition.
3. Types of OICs:
There are three types of IRS OICs that individuals and businesses can propose:
Doubt as to Liability: This type of OIC is pursued when there's a genuine dispute regarding the accuracy of the purported tax liability.
Doubt as to Collectibility: Pursuing a Doubt as to Collectibilty OIC is appropriate when the taxpayer can't afford to pay the full liability due to financial constraints.
Effective Tax Administration: Infrequently, taxpayers may qualify for this type of OIC designed for situations where satisfying the full liability would cause economic hardship or be unfair or inequitable.
4. Evaluation and Approval:
In reviewing Doubt as to Collectibility (and to a lesser degree Effective Tax Administration) OICs, the IRS evaluates each OIC based on the taxpayer's ability to pay, income, expenses, asset equity, and future earning potential. If the IRS accepts an OIC, the taxpayer must comply with certain terms. The terms typically include making agreed-upon payments within a specified timeframe and remaining compliant with tax obligations.
5. Considerations and Impact:
If the IRS approves an OIC and the terms of the OIC are fulfilled, the taxpayer’s debt will be resolved and any IRS liens will be released. However, taxpayers need to ensure compliance with IRS filing and payment obligations for a set period of time after the OIC is fulfilled. Failure to comply could result in the IRS reinstating the portion of the liability that was compromised.
Benefits and Considerations
1. Debt Reduction:
Acceptance of an OIC allows taxpayers to settle their tax liability for less than the total amount owed, providing significant financial and stress relief.
2. Fresh Start:
OICs offer eligible taxpayers a fresh start by resolving their tax liability and allowing them to become compliant with future tax obligations.
3. Complex Process:
Applying for an OIC involves gathering specific and cumbersome financial information. Seeking professional assistance from a tax representative experienced with the OIC process can streamline the work and increase the likelihood of approval.
Installment Agreement (IA):
An IA is an arrangement between a taxpayer and the IRS allowing the taxpayer to pay their tax liability over time via manageable monthly payments rather than in one lump sum. Establishing an IA is often necessary for individuals or businesses incapable of immediately satisfying their entire IRS liability.
Key Aspects of Installment Agreements
Eligibility and Application:
The most critical component to qualifying for and maintaining an IA is compliance with IRS filings and ongoing payment obligations. The IRS will only consider and/or approve an IA for taxpayers that are in full compliance.
2. Types of Installment Agreements:
Guaranteed Installment Agreement: For individual taxpayers who owe $10,000 of income tax or less and can pay off the debt within three years.
Streamlined Installment Agreement: For taxpayers who owe $50,000 or less and can pay the debt off within six years. Streamlined agreements are available to repay personal taxes and a few types of business taxes.
Non-Streamlined Installment Agreement: For taxpayers who owe more than $50,000 or need longer than six years to pay off their debt.
3. Application Process:
Taxpayers can apply for an IA through several IRS channels, including online through the IRS website, by filing specific forms, or by contacting the IRS directly. The application requires disclosure of financial information to determine the appropriate monthly installment amount.
4. Terms and Conditions:
The IRS evaluates each taxpayer's financial condition and requires that the monthly installment payment amount be based on the taxpayer's ability to pay. The terms include a fixed monthly payment, and the taxpayer must remain compliant with all future tax filings and payments.
5. Interest and Penalties:
While an IA will help taxpayers resolve their debts via an affordable schedule, interest and penalties continue to accrue on the outstanding balance until the debt is paid in full. Making timely payments helps reduce additional interest and penalties.
6. Modifications or Changes:
Taxpayers experiencing financial changes or difficulties may request modifications or adjustments to their existing IA by contacting the IRS. This is difficult to do and requires additional financial disclosure to validate the change to the taxpayer’s financial condition.
Benefits and Considerations
1. Flexible Payment Option:
IAs offer flexibility by allowing taxpayers to pay their tax debt in manageable monthly installments rather than in a lump sum.
2. Avoidance of Enforced Collection Action:
Entering into a formal IA will prevent aggressive IRS collection actions, such as wage garnishment or asset seizure, as long as the taxpayer remains compliant with the agreement terms.
Currently Not Collectible (CNC) Status:
Currently Not Collectible (CNC) status is a designation by the IRS for taxpayers experiencing financial hardship who are unable to make payments toward their liability. When CNC status is granted, the IRS temporarily suspends collection activities.
1. Eligibility Criteria:
To qualify for CNC status, taxpayers must demonstrate to the IRS that paying the tax debt would result in severe financial hardship. This hardship can stem from unemployment, major medical expenses, or other circumstances affecting the ability to meet basic living expenses.
2. Temporary Relief:
CNC status is not a permanent resolution for tax debt but offers temporary relief by halting IRS collection activities, such as levies, garnishments, or seizures.
3. Collection Statute Expiration Date (CSED):
Each period of tax liability has its own CSED that expires 10 after the assessment date. It is important to note the assessment date can be different than the tax return due date and there are things (i.e., IRS Appeals, OIC submission, Taxpayer Advocate intervention, etc.) that can extend the CSED. Fortunately, CNC status not only temporarily prevents enforced collection action aside from offset of future IRS refunds, but also allows the statutory period for collecting the tax to continue to run.
4. Annual Reviews:
The IRS periodically reviews the financial situation of taxpayers in CNC status to assess any improvements or changes that might allow for resumption of collection activities or require the debt to be serviced via an IA or OIC.
5. Impact on Tax Debt:
While the IRS doesn't actively collect during CNC status, the tax debt remains, and interest and penalties continue to accrue. The IRS will also apply any future tax refunds to the outstanding debt.
Applying for CNC Status
1. Financial Disclosure:
Taxpayers requesting CNC status must provide detailed financial information to the IRS, including income, expenses, assets, and liabilities, through forms such as the Collection Information Statement (Form 433-F).
2. Documentation:
Supporting documentation, such as pay stubs, bank statements, medical bills, and other relevant financial records, should accompany the request for CNC status.
3. Professional Assistance:
Seeking help from tax professionals or Enrolled Agents experienced in dealing with CNC status can ensure accurate completion of required forms and improve the chances of obtaining this relief.
Considerations for Taxpayers
1. Temporary Relief:
CNC status provides temporary relief from IRS collection actions, but it does not eliminate the tax debt.
2. Re-Evaluation of Financial Situation:
Taxpayers should periodically reassess their financial situation, as improvements could lead to the IRS considering collection alternatives.
3. Alternative Resolution Options:
While in CNC status, taxpayers may explore other resolution options, such as an OIC or IA, if their financial situation improves.
Assistance Programs and Resources
Apart from these resolution options, several assistance programs and resources are available:
IRS Hardship Assistance:
Role of the Taxpayer Advocate Service (TAS)
1. Assistance for Taxpayers in Distress:
TAS provides help to taxpayers enduring financial distress, experiencing an immediate threat of IRS seizure of their homes or businesses, or dealing with significant hardship caused by the IRS's handling of their tax matters.
2. Advocacy and Support:
TAS acts as a mediator between taxpayers and the IRS, striving to find equitable solutions. TAS works to ensure fair treatment and advocate for taxpayers' rights.
3. Identification and Resolution of Systemic Issues:
TAS identifies systemic issues within the IRS that affect multiple taxpayers and works to address the issues to prevent recurring problems.
4. Help with Complex Cases:
For cases involving intricate tax issues or problems that have not been resolved through normal IRS channels, TAS steps in to provide assistance and guidance.
Services Offered by TAS
1. Case Advocacy:
TAS assigns dedicated advocates to work directly with taxpayers to understand their situations and navigate through IRS processes to resolve their tax problems.
2. Expedited Resolutions:
In urgent cases, TAS can expedite their resolution work, especially when taxpayers face immediate financial hardship or are at risk of severe IRS collection measures.
3. Education and Outreach:
TAS conducts outreach programs and educational initiatives to inform taxpayers about their rights and available resources when facing tax-related challenges.
How to Contact TAS
Taxpayers can reach out to TAS if they have been unable to resolve their tax issues through normal IRS channels or if they are experiencing financial hardship due to IRS actions. TAS can be contacted through:
Local TAS Offices: Taxpayers can locate the nearest TAS office and request assistance in person or by phone.
TAS Toll-Free Number: The TAS has a toll-free hotline where taxpayers can explain their situation and seek help. 1-877-777-4778
Low-Income Taxpayer Clinics (LITCs):
LITCs offer free or low-cost assistance to low-income taxpayers dealing with IRS issues. These clinics provide legal representation, advice, and advocacy for those in financial distress.
Seeking Professional Guidance
Navigating tax resolution during financial hardship is extremely challenging. Seeking advice from tax professionals experienced in handling such situations is invaluable. Qualified representatives should assess each taxpayer’s circumstances and recommend the most suitable resolution strategy.
Conclusion: Addressing Tax Challenges Amidst Hardship
Financial hardship can significantly impact an individual's ability to meet tax obligations, but there are options and assistance programs available to help IRS tax debts. Understanding options and seeking top professional guidance can provide relief and pave the way to resolving tax liabilities and alleviating financial strain during challenging times. Now that you've read the Top Options to Conquer IRS Tax Debts, you are more prepared to face the IRS and navigate your way back to financial bliss.
Remember, taking proactive steps and exploring available options is crucial in finding a viable path to resolve IRS liabilities amidst financial adversity.
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If you are dealing with IRS penalties, our team is here for you. We have dealt with thousands of cases that have have accrued penalties and interest . The experts on our team have helped countless individuals and businesses frictionlessly navigate IRS tax debts and penalties and get back on track. Contact us for a free consultation today!
IRS Works Referenced;
Internal Revenue Service. Internal Revenue Code Section 7122.
Internal Revenue Service. IRM 5.16.1.1 - Currently Not Collectible Overview.
Internal Revenue Service. Internal Revenue Code Section 6159.
Internal Revenue Service. IRM 5.14.1.1 - Policy Statement on Installment Agreements
Internal Revenue Service. IRM 5.8.5.1.1 - Offer in Compromise Initial Contact.