Did you recently get a tax bill from the IRS that you can’t pay? Or maybe you’ve owed back taxes for some time and are facing levies, garnishment or asset seizures?
It can be overwhelming to resolve your debt with the IRS, particularly if you’re struggling financially. Fortunately, there are relief options to help you get back on track, such as:
- Currently Not Collectible: You might be eligible for CNC status if you can prove that you’re experiencing financial hardships which have made it impossible for you to afford your tax payments. This will allow you to temporarily stop making tax payments until the IRS has determined that you’re in a position to commence payments once again.
- Installment Agreement: Under this plan, you can pay back your tax debt in the form of small monthly payments over an extended period of time instead of having to pay a lump sum at any one time.
- Offer in Compromise: Under this partial forgiveness program, the IRS offers to settle your tax debt for a portion of the full amount owed if you qualify for an OIC due to financial hardship or other extenuating circumstances.
- Penalty Abatement: Through this system, you can request the removal of tax penalties or fines levied for late filing of your tax returns. The original amount owed in taxes would, however, still need to be paid in full.
A reputed tax debt relief company (employing experienced tax professionals) will be able to help you make the best use of these IRS offers to reduce or restructure your tax debt.
What is Tax Debt Relief?
Tax debt relief isn’t a particular offering or program. Instead, it’s a concept used to describe options available to taxpayers who owe back taxes and would like to resolve their unpaid tax debt with federal and state taxing authorities.
Businesses and individuals who owe taxes to the state or federal government may seek tax debt relief to manage their payments, reduce the amount owed, or even completely eliminate the tax debt if the initial assessment of tax liability was erroneous.
The type of tax debt relief you’re eligible for will vary depending on your financial situation and the specifics of your case, which is why you should seek the help of an experienced tax relief company when availing of these options.
Unpaid business taxes, unpaid income taxes, and unpaid payroll taxes are some of the common factors that give rise to tax debt, and the type of debt you have will help determine the relief options available to you.
Tax Debt Relief Programs and Options
If you owe the IRS, there are several options to help resolve your federal tax debt. Let’s dive in and take a deeper look at what each of these options entails, how they can help you, and which one might be suitable for your circumstances.
You will, however, need to contact a qualified tax professional or tax relief company to determine whether or not you qualify for these tax debt relief programs.
The IRS Fresh Start Program
The IRS Fresh Start Initiative (formerly known as the Fresh Start Program) caters to individuals and businesses struggling to pay their tax debt. It includes the following relief options:
Offers in Compromise (OICs)
If you’re experiencing financial hardship, you could qualify for a tax settlement. It’s referred to as an Offer in Compromise (OIC), and the IRS could agree to settle your unpaid tax debt for a portion of the total outstanding balance.
There are three types of OICs:
- Doubt as to Collectability: The taxpayer lacks sufficient income and assets to pay tax debt within the statutory period.
- Doubt as to Liability: The tax examiner misinterpreted the tax code to assess liability or failed to review the evidence presented by the taxpayer. Consequently, there’s legitimate doubt that the taxpayer actually owes the assessed tax liability.
- Exceptional Circumstances (Effective Tax Administration): The taxpayer is dealing with an extenuating circumstance, and paying back taxes would be unfair, inequitable or result in serious financial hardship.
You also want to file all legally required returns and be up to date on mandatory estimated tax payments for the current year to qualify.
IRS Payment Plans
IRS installment agreements allow you to repay your tax debt through a monthly payment plan rather than in a single lump sum.
- Short-Term Payment Plan: Reserved for taxpayers who owe less than $100,000 (including penalties and interest) and can pay the outstanding balance within a 120 to 180-day period. This payment plan is only available to individual taxpayers. You can apply for this payment plan online without having to pay any setup fees.
- Long-Term Payment Plan: Reserved for individual taxpayers or businesses who owe no more than $50,000 or $25,000, respectively, and can repay the outstanding balance in six or fewer years. This option involves a minimum $31 setup fee.
- Extended-Term Payment Plan: The terms of this installment agreement depend on what the taxpayer can afford, as determined by the IRS, once income and expenses are taken into consideration.
- Taxpayers who owe less than $50,000 in outstanding tax debt can apply for an IRS installment agreement online and complete the process within a few minutes. Those who owe more than $50,000 will have to submit a Collection Information Statement (Form 433-A or 433-F) and negotiate their payment plan directly with the IRS.
- In both cases, the business or individual will have to agree to pay the designated amount every month until the tax debt has been paid in full, including any relevant penalties or interest. Failure to uphold this agreement could result in the seizure of assets, wage garnishment, additional penalties, and other enforcement actions.
Currently Not Collectible (CNC) Status
You could qualify for CNC status if the IRS determines that the level of your income, expenses and assets make it impossible for you to afford tax payments. If you’re eligible for CNC status, the IRS will defer tax payments and assess your finances annually to determine when repayment can commence.
CNC status essentially means that the IRS will temporarily halt any collection actions initiated against you. However, it should not be seen as a permanent solution since it does not absolve you of the outstanding tax debt. Instead, it is simply meant to provide temporary relief from federal tax liens, wage garnishments, and bank levies while you’re undergoing a period of financial hardship.
In order to qualify for temporary relief under the CNC status, you’ll have to provide detailed information about your financial situation to the IRS, including your assets, liabilities, income, and expenses. The IRS will then use this information to determine whether or not you meet their standards for CNC status.
Even if you qualify for CNC status, however, you’ll still need to file your tax returns on time and pay any new taxes that are due since the CNC status applies only to the tax debt that you already owe and not to future tax payments.
Tax Relief Companies
Tax relief companies are for-profit entities that assist individuals and businesses with federal and state tax issues.
Should You Hire Someone to Help?
If you’re struggling to resolve tax debt or confused about your options, it’s worthwhile to hire professional help. Consider a reputable and established tax relief company to help you evaluate your options and make an informed decision regarding the best course of action to resolve federal or state tax issues.
How Do Tax Debt Relief Companies Work?
Most tax debt relief companies work with individuals and businesses to help them restructure or renegotiate the tax debt they owe to the federal or state government. Here’s how it usually works:
- The taxpayer requests a free consultation.
- During the initial meeting, a representative reviews the taxpayer’s financial situation, including their tax history, outstanding tax liabilities, income, expenses, etc.
- The tax debt relief company will then consult with the IRS or state tax agencies to find out the exact amount of tax debt owed and whether or not the taxpayer qualifies for any tax debt relief programs.
- The company will then negotiate with the relevant tax agency on behalf of their client, trying to get them the best possible deal. This might involve a settlement agreement, a reduction in the tax amount owed, or a simple monthly payment plan to allow the business or individual to pay off the tax debt in manageable installments.
- The taxpayer will continue working directly with the debt relief company until their tax-related issues have been fully resolved.
How Much Do Tax Relief Services Cost?
Tax debt relief companies charge a fee for their services. The exact amount might vary depending on the company you choose and the complexity of your tax situation. It could range from a few dollars to several thousand. Some charge a flat fee, while others charge a percentage of the amount owed to the IRS.
How to Determine if a Tax Debt Relief Firm is Legitimate
Before you hire a tax debt relief firm, consider the following:
- Does the firm operate in your state? If not, they might not be a good option to help you navigate the tax debt owed to your state tax agency. The best course of action, therefore, is to choose a company that has clients in all 50 states.
- Is the firm accredited by the Better Business Bureau (BBB)? If so, what’s their rating? Ideally, you should only work with tax relief companies that have a rating between “A+” and “A-.”
- How many years has the firm been in business? Choosing a company that has been in business for a decade or more will allow you to benefit from their depth of experience and knowledge in the field of tax debt relief.
- Are there client success stories? A successful tax debt relief firm should have thousands of satisfied customers behind them, as well as a large number of excellent reviews and testimonials.
- Does the firm employ enrolled agents? A sizeable firm in this industry should employ multiple enrolled agents on staff to provide their clients with the expertise and professional tax guidance they need.
- Is there a fee for consultations? If the tax debt relief company charges a fee for the initial consultation, there’s a good chance that they might not be a legitimate business.
