Options for Repaying IRS Tax Debt

When dealing the IRS, communication is essential

During tax season, many people look forward to refunds of money owed to them by the IRS. They anticipate using their refunds for investments, repayment of personal loans, vacations, or any number of other worthwhile things. For other people, however, tax season is a very stressful time of year. It’s a time to review finances, to account for money spent and income received for the entire year, and to figure out how much they owe to Uncle Sam.

Every year, a large number of these people fail to pay their taxes and they eventually find themselves owing a serious tax debt to the IRS. Many begin to avoid the agency, believing that their debt is too large to overcome and that they may lose all of their investments and savings when and if the IRS ever catches up with them. However, the IRS may actually be able to help a person owing a tax debt if that person is willing to communicate with the agency and explore avenues of repayment.

Installment plans are available for many

For someone who’s never been delinquent with the IRS before, an installment plan may be an option. Generally, this option is only made available to those who owe less than $25,000. However, even people who owe more $25,000 may request an installment plan. When the debt exceeds $25,000, the payment-plan approval process may be a bit more involved. For instance, the account may be assigned to a special revenue officer for the duration of the payment plan.

Offers in compromise work for some

Under some circumstances, the IRS may accept less than the total amount owed in full satisfaction of the debt. This sort of arrangement is called an offer in compromise, and it requires the taxpayer to make one lump-sum payment for the total amount agreed upon in order to satisfy the debt. The lump-sum payment may be a significant amount, but frequently it will be much less than the original amount owed.

Bankruptcy won’t make the IRS go away

Sometimes, people who are indebted to the IRS seek to avoid paying by filing for bankruptcy. However, a bankruptcy does not necessarily eliminate IRS debt. In some cases, a bankruptcy may result in the creation of a plan to pay the debt in installments over time, and it may prevent additional penalties and interest from accruing, but in most cases, IRS debt is not discharged in bankruptcy. A tax debtor should always get competent legal advice before filing bankruptcy.

IRS debt forgiveness is rare, but not impossible

In rare cases, the IRS may forgive tax debts when the amounts owed are the result of a tax return filed a certain number of years prior to filing for bankruptcy or if the taxes owed were assessed at least 240 days prior to the bankruptcy filing. A few other exceptions exist as well, such as when it is determined that an extreme hardship exists and the debt is not the result of the taxpayer attempting to evade tax laws. In some cases, a bankruptcy may make it easier to repay an IRS debt, but this is never a guarantee, and anyone owing a tax debt should obtain legal counsel before deciding whether to file a bankruptcy.

Communication is best way to resolve IRS debt

It is always best to pay taxes on time. Short of that, when an IRS debt is owed, making timely payments on an installment plan helps to avoid late penalties and other fees, and may also help a debtor to maintain a good credit standing. This is just as true for IRS debts as it is for credit-card and other debts. When a person falls behind on a tax debt, the absolute best way to resolve it is to communicate openly and clearly with the IRS to find out exactly what is owed and what repayment options are available. Communicating in this way can help people to gain control of their finances and eliminate tax debt along with enormous mental and emotional stress.

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