What Is the Process for Resolving Tax Debts?

Taking advantage of IRS options to pay off tax debts

By Andra DelMonico, J.D. | Reviewed by Canaan Suitt, J.D. | Last updated on August 1, 2024 Featuring practical insights from contributing attorney Richard S. Kestenbaum

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The worst thing you can do is ignore your tax liability when you find out that you owe the IRS after filing your federal tax returns. Ignoring your tax debt doesn’t mean that it will go away. In contrast, ignoring your tax debt will result in an increasingly worse financial situation.

Prompt and active repayment or communication with the IRS is essential for ensuring your income tax debt is repaid without additional interest, fines, and levies. Taking no action will result in IRS collection activities. Thankfully, the process for repaying your tax debt is straightforward, with several options to fit your circumstances.

Does the IRS Have a Tax Debt Forgiveness Program?

Several programs through the IRS enable taxpayers to resolve their tax liability. There isn’t a one-size-fits-all approach because each taxpayer’s situation is different. If you have a tax bill you cannot pay by the due date, your first step is to review the options. Compare each to your situation and choose the one that addresses your needs.

Many of the options are payment plans that allow you to extend the amount of time you have to make your full tax payment. Some tax forgiveness programs will eliminate all or part of your tax debt, but they are not available to everyone in all situations. These programs are typically available to taxpayers who can demonstrate that they are facing significant financial hardship. In some situations, the IRS may eliminate or cancel the entire tax debt. However, these are typically done when you can show that the debt is factually or legally incorrect.

Richard Kestenbaum, a tax attorney at Kestenbaum & Mark in Great Neck, New York, explains how there are certain circumstances where the IRS will erase a tax debt. “Sometimes the IRS makes a system error or a mistake in a legal concept. Sometimes the system just screws up. That’s an instance when the IRS will relieve you of the whole liability, or you will qualify for an offer in compromise. They (IRS) could wipe out an entire liability.”

Tax Resolution Services Offered by the IRS

Several programs are available to taxpayers who cannot pay their total tax debt by the due date. Not all tax debt relief programs are available to everyone. Your eligibility will depend on the amount you owe, your financial situation, and other factors. When considering your options, consider your payment options.

Installment Agreements

A payment agreement is a good option if you can pay your tax debt but just need more time. There are short and long-term repayment plan options. The taxpayer will make monthly payments over a period of time until they pay the full amount. Whether you qualify for a short or long-term payment plan will depend on the amount you owe and how long you need to make full payment.

Offer in Compromise (OIC)

If taxpayers cannot pay the full amount they owe, they could make an offer in compromise (OIC) to the IRS. This allows them to settle their tax debt for less than what they owe. A taxpayer would need to be in a qualifying financial situation that shows they cannot pay the full amount with a payment plan.

Currently Not Collectible (CNC) Status

Life is unpredictable, and you may find that an unpredictable event prevents you from being able to make payments. This could be a sudden medical illness or condition, natural disaster, or accident. A taxpayer can let the IRS know that while they intend to pay their tax debt, they cannot do so right now. The IRS will put their account in a currently not collectible (CNC) status. This lets taxpayers recover from their financial hardship and resume making payments without facing additional penalties or IRS collection actions.

Innocent Spouse Relief

The IRS understands that sometimes a spouse may find themselves facing a tax debt incurred by their spouse. If one spouse understates their income and the other spouse isn’t aware of this inaccuracy on their joint return, they can request innocent spouse relief from the IRS. Relief of unpaid taxes is not automatic, and the IRS can reject the request. However, the innocent spouse can find relief from collection actions if approved.

[Taxpayers] should be very cautious in hiring anyone who isn’t a tax professional—a tax lawyer or accountant. Anybody who tells you that they can settle with the IRS for $0.10 on the dollar, there’s no such thing. So if they’re making promises about what they can do before they even know your situation, then be wary

Richard S. Kestenbaum

What Are the Steps for Resolving Tax Debts?

The easiest method for resolving your tax debt is to pay it online. The IRS.gov website allows taxpayers to make an account and manage their tax payments. Other options available are by mail or in person. The IRS will never email taxpayers about a tax debt owed.

The first step in resolving your tax debt is to assess your situation. Calculate your total tax debt, including any penalties or interest that can increase the amount you owe. Next, schedule a consultation with a tax lawyer or consultant. With the professional’s help, decide your best course of action. With this decision, apply for your chosen tax debt relief program with the IRS. Once approved, comply with all requirements of your tax debt relief program. Failure to follow all of the requirements could result in the IRS canceling your participation in your program and assessing additional fines and interest. Your participation in the tax relief program is compliant when you pay the full amount owed.

How Do I Get Tax Debt Help?

If you are facing a tax debt that you cannot immediately pay, seeking help can provide much-needed peace of mind. Begin by gathering all relevant financial information. Then, schedule a consultation with a tax professional or a tax attorney. Discuss your financial and tax situation with them. Explain what, if any, communication you have had with the IRS. The tax attorney will explain your options and potential outcomes. They can also explain the possible outcome if you don’t fulfill the payment of your tax debt, such as a tax lien.

Kestenbaum explains that attorneys are well-versed in tax law and the IRS code. They will know if a discount or reduced calculation is available to you. This could help you negotiate a lower repayment amount. It can also ensure your assets receive a fair evaluation. “We know that there are discounts involved that the IRS will accept in terms of value. For example, if you have a house and you want to put it up for sale, and you know you’re not in any rush and can wait until the right buyer comes along, the house gets one value and sells for one price.”

What Tax Debt Services Are Available?

Working directly with the IRS can provide relief and help prevent the IRS from taking further collections actions. However, there are other services that can assist with resolving tax debt.  There are advantages and disadvantages to working with the IRS through a third party. A professional service will have more know-how that taxpayers can benefit from. This could include qualifying for a program, negotiating with the IRS, and preventing adverse actions.

Beware of working with less reputable tax relief companies. These companies claim to help taxpayers but are actually in business to take advantage of taxpayers in vulnerable financial positions. These tax relief scams will make promises that sound too good to be true without knowing anything about your specific situation.

Kestenbaum explains that taxpayers should be cautious when choosing a taxpayer advocate service. “They should be very cautious in hiring anyone who isn’t a tax professional—a tax lawyer or accountant. Anybody who tells you that they can settle with the IRS for $0.10 on the dollar, there’s no such thing. So if they’re making promises about what they can do before they even know your situation, then be wary.”

Do I Need an IRS Tax Relief Attorney?

While you can apply and enroll in an IRS payment plan on your own, there are benefits to working with a tax attorney. A lawyer can evaluate your situation and provide guidance on the best course of action. They can also communicate and negotiate with the IRS on your behalf.  If your situation is more complicated, a lawyer can help resolve issues with back taxes, federal tax liens, seized bank accounts, and wage garnishments. A tax lawyer can also represent clients who are facing tax court.

Find Experienced Tax Debt Help

Taking a proactive approach to resolving your IRS tax debt is the best approach to avoiding further consequences. Tax issues do not go away on their own. Often, taxpayers can resolve their tax debt by contacting the IRS and working with them. This can stop the IRS from pursuing more aggressive collection practices. Working with a tax attorney can help taxpayers understand their rights, payment options, and communicating with the IRS.

Visit the Super Lawyers directory to begin your search for an experienced tax attorney.

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