Learn About Tax Debt Forgiveness
It sounds like a grim situation, but the IRS does offer a variety of programs intended to alleviate the financial burden for some people who owe back taxes. Keep reading to learn more about tax debt forgiveness and management options.
Being declared "uncollectible"Do you have a back tax debt that you simply cannot pay? Maybe your annual income has declined significantly, or perhaps you've lost your job entirely.
In that case, you may qualify for an uncollectible status. When you are declared uncollectible by the IRS, it means that the IRS has to stop trying to collect on your back taxes. Although you will still owe the tax burden should you ever be able to pay it, until such time, you will no longer have to worry about levies, seizures, or other debt collection activities. In order to qualify for uncollectible status, you must be able to show the IRS that any income you do have must be used towards a necessary living expense for you and your family.
Offer In CompromiseThe IRS offers another tax debt forgiveness program called the Offer in Compromise. This program allows qualified people to settle their back taxes with the IRS for less than what they owe. One reason many struggling Americans are unable to pay their back taxes is because of mounting interest and penalties on top of the original obligation.
Under the Offer in Compromise program, you may be able to get rid of penalties and interest all together, and only be responsible for an amount you can actually handle. A taxpayer’s income and assets will be assessed by the IRS to determine their ability to pay. However, an offer will not be accepted if the IRS sees that the liability can be paid in full, may it be as a lump sum or through a payment agreement.
Filing BankruptcyAlthough not all tax debt is dischargeable in bankruptcy, some are. Depending on whether you file Chapter 13 or Chapter 7, your tax debt could be significantly reduced either right away, or after following through with your bankruptcy repayment schedule.
Note, both Chapter 13 and Chapter 7 options require that you meet certain qualification conditions. For the most part, the taxes should be income based and there can not be any evidence of fraud or wilful evasion. There are also conditions based on when the return was filed and due as well as when taxes were assessed.
Installment AgreementsLike every creditor, the main objective of the IRS is for it to collect the money owed to it. Although in an ideal world everyone would be able to pay their entire obligation the day it's due, that is simply not the reality. If you're struggling with past due taxes and haven't yet qualified for another tax debt forgiveness program, consider entering into an installment agreement with the IRS.
The situation may not be ideal for individuals with large tax burdens who can only make minimum monthly payments, but it may be a helpful interim step. Entering into an installment agreement, even if it's just while you figure out how to proceed, puts you in compliance with the IRS and stops harassing and stressful collection activity.
Owing back taxes is a scary situation for many. If you don't handle the situation, you could lose your home, car, or other monetary assets. Having taxes in collections can also affect your credit and make it difficult for you to borrow and get ahead financially. Even more frightening, the longer you don't pay, the worse it gets. Interest and penalties add up fast, and quickly totals more than the principal balance for many people who owe back taxes.
If you're facing a mounting back tax debt, do not wait for it to be insurmountable. Contact an experienced tax professional today and get started on the process towards tax debt forgiveness and a brighter financial future.
By Andrew M