The 8 Most Common Tax Resolution Programs

Posted 8/14/2008 1:51:31 PM

Everyone in the country knows the IRS has a reputation for being aggressive in the collection of owed taxes. However, they do offer a few different settlement options to help taxpayers that honestly cannot afford to fully repay their taxes. Although anyone can represent one’s self before the IRS, many taxpayers seek representation from an attorney or accountant due to the complexity of the tax laws. Whether you need assistance or not, below are the 8 most common tax resolution programs and a brief explanation of how each works to resolve your IRS tax liability.

1. Full Payment
The fastest way to resolve owed back taxes is by paying them in full. This includes paying the interest and penalties that have been assessed by the IRS back. These penalties and interest can quickly add thousands of dollars to your tax liability as they are constantly accruing. If you intend to fully repay the IRS then you should try to do so as soon as possible to avoid additional expenses.

2. Installment Agreement
By negotiating an Installment Agreement (IA) with the IRS, you can repay all, or part, of your total back tax liability through manageable monthly payments. The specific monthly payment is based upon how much you owe and how much you can afford to pay. However, negotiating your payment will require a full disclosure of your and your spouse’s financial information. Additionally, as with all IRS tax relief programs, you can only enter into an agreement if you have filed all your necessary federal income tax returns.

3. Streamlined Installment Agreement
This is a special type of Installment Agreement. Again, the Streamlined Installment Agreement (SIA) is just a monthly payment paid to the IRS to address your back tax liability. The difference is how it is calculated. An IA is based upon a comparison of income to expenses. An SIA is based upon how much you owe. So long as you owe less than $25,000 and the tax liability will not expire in less than five years, you qualify for this payment plan.

4. Placement on CNC Status
If you cannot afford to pay on your IRS back taxes at all, then you might qualify for placement on the IRS’ Currently Not Collectible (CNC) status. However, you will need to prove to the IRS that your monthly necessary living expenses exceed your monthly income.

5. Offer in Compromise
The final settlement program offered by the IRS is an Offer in Compromise (OIC). With an OIC you submit an offer to the IRS detailing what you can afford to pay in a lump sump. If the IRS accepts then by submitting payment you will resolve your tax debts. However, submitting an OIC requires disclosure of extensive financial information in order to prove that you could not repay your taxes fully over the next 4 or 5 years even if the IRS forced the sale of all assets that you currently own.

6. Just Wait
If your back tax liabilities developed a while ago then you may not need to do anything at all to resolve your back taxes. The statute of limitations on the collection or tax debts is 10 years, which means the IRS only has 10 years to collect back taxes from the date on which they were assessed. So if you have back taxes or unpaid taxes from a decade ago, the IRS may no longer be able to collect them. But remember that there are events that can occur that will extend this timeframe, such as bankruptcy, etc.

7. Innocent Spouse
This is a very limited form of tax debt resolution. It is only applicable when one’s spouse files a joint tax return which accrues a tax liability without any knowledge on the part of the other spouse of what caused the underlying IRS tax liability. Although it is very limited, it is one in the best forms of tax debt resolution because it completely eliminates the debt, interest, and penalties from the innocent spouse’s IRS account. However, the “non-innocent” spouse still needs to seek a different form of resolution.

8. Bankruptcy
As a last resort, you could resolve your back taxes through filing for bankruptcy. However, there numerous factors to consider before you attempt to get your back taxes discharged in bankruptcy. Typically, recent tax liabilities and business-related payroll back taxes cannot be discharged in bankruptcy. Nevertheless, if you are seriously considering bankruptcy, you should speak with an experienced bankruptcy attorney as soon as possible.