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6 Different Ways to Resolve Outstanding Tax Debts

By: Ryan Tyson


Different Ways of Resolving Outstanding Tax Debts

Getting a notice from the IRS that you owe back taxes can be intimidating. Usually, though, the IRS is willing to work with taxpayers who want to resolve tax debt. The Fresh Start Program makes payment options available to people who didn’t qualify previously.

The program offers repayment choices including installment plans, Offers in Compromise, and deferments. You can take advantage of these choices if you’ve filed all your tax returns or have a valid extension on the current year’s tax return.

If you owe back returns, file the missing returns before you ask for a repayment plan for outstanding tax debt. Resolving a tax issue can be difficult when you’re not familiar with tax laws. Keep in mind that filing for bankruptcy won’t wipe out most tax debt. If you feel overwhelmed, consider contacting a professional tax advisor who can help you reach the best outcome for your situation.

Installment Plan

Taxpayers who owe less than $50,000 to the IRS can set up an installment plan. You can make a monthly payment offer for the IRS to consider. You’ll need to make an offer that’s equal to your total debt divided by 72. You have the option to offer the minimum monthly payment and add extra payments when you can.  Offering an installment plan is often the first step in a successful tax resolution.

Offer in Compromise

Sometimes it’s possible to offer the IRS less money than you owe. If you can prove you really can’t pay all your back taxes, the IRS might accept an Offer in Compromise. You’ll need to file additional financial forms for the IRS to review your situation. When the IRS agrees to the Offer in Compromise amount, the offer is accepted.

Hardship Deferment

Temporary deferments are also available if you suffer a hardship such as a fire or an illness. The IRS does not forgive your tax debt; however, collection activity stops until your status changes and you’re able to make payments. You can reach out the IRS directly or hire a professional tax consultant to help you apply for a deferment.

Tax Advocate

If you’ve tried unsuccessfully to reach a payment agreement with the IRS, contact a tax advocate. The Tax Advocate Service (TAS) is part of the IRS. A staff member can help you understand your rights and achieve a successful tax resolution. The TAS can also help you resolve incorrect tax returns and obtain extensions on current returns.

Tax Court

If you strongly disagree with the IRS’s claim that you owe taxes and can back up your deductions with documentation, you can take the IRS to tax court. The Court usually resolves cases involving less than $50,000 quickly.

It’s important to resolve your tax debt as soon as possible. Consider these options and work with the IRS to reach a payment agreement. If your tax returns are complicated or you face criminal charges, get assistance from a tax attorney to help you reach a favorable outcome with the IRS.

Published: June 28, 2018

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