Exploring Options for IRS Tax Debt Relief

Dealing with tax debt can be a daunting and stressful experience for any individual or business. The
Internal Revenue Service (IRS) is responsible for collecting taxes and ensuring compliance with tax laws
in the United States. If you find yourself unable to pay your taxes, the IRS offers various options for tax
debt relief.

Exploring Options for IRS Tax Debt Relief
Exploring Options for IRS Tax Debt Relief

What is IRS Tax Debt?

IRS tax debt refers to the amount of unpaid taxes that an individual or business owes to the Internal
Revenue Service (IRS). This can occur due to a variety of reasons, such as failing to file tax returns,
underreporting income, claiming false deductions, or simply not having enough funds to pay the full
amount owed.

If you owe money to the IRS, it is important to take action immediately. Ignoring your tax debt will only
make matters worse and could result in serious consequences such as wage garnishment, bank levies,
or even legal action by the IRS.

Exploring Options for Tax Debt Relief


Offer in Compromise

One potential option for individuals struggling with IRS tax debt is an Offer in Compromise (OIC). This
program allows taxpayers to settle their tax debt for less than the full amount they owe. However, this
option is not available for everyone and it is important to fully understand the process and eligibility
requirements before deciding to pursue an OIC.

To qualify for an Offer in Compromise, the taxpayer must meet certain criteria set by the IRS. First, they
must have filed all required tax returns and made any necessary estimated tax payments for the current
year. Second, they cannot be involved in an open bankruptcy proceeding. Additionally, there are specific
income and asset limitations that vary depending on individual circumstances.

The first step in submitting an Offer in Compromise is to determine if you are eligible by using the IRS
Offer in Compromise Pre-Qualifier tool. If you meet the initial qualifications, then you can submit Form
656 along with a $205 application fee and a non-refundable initial payment towards your offer amount.
This amount will be applied to your total offer if it is accepted or returned if your offer is rejected.

Once your application has been submitted, it will go through a lengthy review process where every
aspect of your financial situation will be thoroughly evaluated by the IRS. This includes analyzing your
income, expenses, assets, and future earning potential. The IRS may also request additional
documentation or clarification during this review period.

If your Offer in Compromise is accepted, you will have several options for paying off the remaining
balance: lump sum cash payment within five months of acceptance; periodic payments over six months

to two years; or deferred payments based on future income over two years. It’s important to note that
while waiting for a decision on your OIC application, penalties and interest will continue to accrue on any
outstanding tax balances.

It’s crucial to carefully consider all other options before pursuing an Offer in Compromise as it can have
long-term consequences. Any tax refunds due to the taxpayer will be applied to their outstanding tax
debt, and they must remain compliant with all future tax filings and payments for five years after the offer
is accepted.

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Installment Agreements

Installment agreements are a popular option for taxpayers who are unable to pay their tax debt in full.
This type of agreement allows individuals to make smaller, manageable payments over time instead of
one lump sum.

There are several different types of installment agreements that the IRS offers, each with its own
eligibility requirements and payment terms. The most common types include guaranteed, streamlined,
and partial payment installment agreements.

A guaranteed installment agreement is available for taxpayers who owe less than $10,000 in combined
taxes, penalties, and interest. This type of agreement does not require extensive financial information or
a detailed review by the IRS. As long as you meet the criteria and can commit to paying off your balance
within three years, your request will likely be approved.

The streamlined installment agreement is another option for taxpayers who owe less than $50,000 in tax
debt. This type of agreement also has a simplified application process and does not require a detailed
financial analysis. However, you must agree to pay off your balance within six years or before the statute
of limitations on collection expires – whichever comes first.

For those with larger tax debts or more complex financial situations, a partial payment installment
agreement may be an appropriate solution. This type of arrangement allows taxpayers to make reduced
monthly payments based on their ability to pay after taking into account necessary living expenses. It
typically requires more extensive documentation and approval from the IRS.

It’s important to note that all installment agreements come with certain conditions and fees that must be
met in order to maintain compliance with the IRS. For example, if you fail to make timely payments or
accrue additional tax debt during the duration of your agreement, it can be terminated by the IRS.

To apply for an installment agreement with the IRS, you can either fill out Form 9465 (Installment
Agreement Request) or use the Online Payment Agreement tool on their website. It’s recommended that
you seek professional assistance when considering this option as they can help you negotiate the best
terms and ensure that all necessary paperwork is completed accurately.

Currently Not Collectible Status

The currently not collectible (CNC) status is a temporary relief option offered by the Internal Revenue
Service (IRS) for taxpayers who are unable to pay their tax debt due to financial hardship. This status
essentially puts a hold on any collection actions by the IRS, giving the taxpayer some breathing room to
get their finances in order.

To qualify for CNC status, taxpayers must prove that paying their tax debt would cause significant
financial hardship. This includes providing detailed information about their income, expenses, assets, and
liabilities. The IRS will review this information and determine if the taxpayer meets the criteria for CNC
status.

If granted CNC status, the IRS will stop all collection activities such as wage garnishment, bank levies,
and property seizures. However, interest and penalties will continue to accrue on the outstanding tax
debt. It’s important to note that this is only a temporary solution and does not eliminate or reduce the
amount of tax debt owed.

There are several reasons why someone may be eligible for CNC status. These include being
unemployed or experiencing a significant decrease in income, having high medical expenses or other
necessary living expenses that leave little money for paying taxes, or facing insurmountable debt with no
foreseeable increase in income.

It’s important to keep in mind that obtaining CNC status does not mean that your tax debt goes away
permanently. The IRS will periodically review your financial situation to see if you have become able to
pay your taxes again. If they determine that you can now pay your debts based on improvements in your
financial situation, they may revoke your currently not collectible status.

In addition to providing relief from collection actions, obtaining CNC status also has benefits when it
comes to filing future tax returns. When a taxpayer owes back taxes at the time of filing their return, any
refunds due may be applied towards their outstanding balance instead of being issued directly to them.
However, if someone is granted CNC status before filing their return and they have a refund due, the IRS
will issue the refund to the taxpayer.

Innocent Spouse Relief

So, what exactly is Innocent Spouse Relief and how does it work? Essentially, it allows innocent spouses
to avoid being held liable for the tax debts incurred by their spouse or ex-spouse. This means that the
IRS will not pursue collections from the innocent spouse for any taxes owed on a joint return.

To qualify for Innocent Spouse Relief, there are certain criteria that must be met. Firstly, the individual
must have filed a joint tax return with their spouse or ex-spouse during the time when the erroneous item
was reported. The erroneous item refers to any income, deduction, or credit that was incorrectly reported
on the joint return.

Secondly, at the time of filing for Innocent Spouse Relief, you must prove that you had no knowledge of
any understatement or underpayment of taxes on your joint return. This could be due to your spouse

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