What are my options if I owe back taxes to the IRS?
Owing back taxes to the IRS can be stressful. Receiving notices from the IRS in the mail about your past due taxes is scary and most people don’t know where to start to try to resolve the debt. Instead, they may throw the notice in a drawer and pray the IRS goes away. The bad news is that - no matter what kind of administration is in the Whitehouse, the IRS is not going away. The good news is there are several options available to help you address the situation.
Owing back taxes to the IRS can be stressful. Receiving notices from the IRS in the mail about your past due taxes is scary and most people don’t know where to start to try to resolve the debt. Instead, they may throw the notice in a drawer and pray the IRS goes away. The bad news is that - no matter what kind of administration is in the Whitehouse, the IRS is not going away. The good news is there are several options available to help you address the situation. Here are some common options:
Payment Plans (Installment Agreements): You can arrange to pay off your tax debt over time through a monthly payment plan. The IRS offers various types of installment agreements, including streamlined installment agreements for debts under a certain threshold and partial payment installment agreements for those unable to pay the full amount owed.
Offer in Compromise (OIC): This program allows taxpayers to settle their tax debt for less than the full amount owed if they meet certain criteria demonstrating financial hardship (it is unlikely the IRS will be able to fully collect the tax debt over the time they are legally allowed to attempt to collect) or doubt as to liability. The IRS will consider your ability to pay, income, expenses, and asset equity when evaluating your offer. Some offers are “lump sum” offers and others are paid over time. Beware of companies that promise to be able to settle your tax debt for “pennies on the dollar”. While it is possible, it is not the norm. Things that appear too good to be true usually are.
Currently Not Collectible (CNC) Status: If you're facing financial hardship and cannot afford to pay your tax debt, you may qualify for CNC status. This temporarily suspends IRS collection activities until your financial situation improves. However, interest and penalties may continue to accrue during this time.
Penalty Abatement: In certain circumstances, the IRS may waive penalties associated with unpaid taxes. This typically requires demonstrating “reasonable cause”. Reasonable cause means you can demonstrate an acceptable reason to the IRS that your penalties should be reduced or eliminated such as significant medical issues, natural disasters, or reliance on erroneous advice from a tax professional.
Bankruptcy: In some cases, tax debts may be dischargeable through bankruptcy, but this depends on various factors, including the type of tax debt and the timing of the bankruptcy filing.
Innocent Spouse Relief: If you filed a joint tax return with your spouse and your tax debt is a result of your spouse's actions, you may qualify for innocent spouse relief, which could relieve you of responsibility for the tax debt.