Tax Debt Relief Program: What You Need to Know

Are You Struggling With Tax Debt? You’re Not Alone.

If you’ve fallen behind on your taxes and owe money to the IRS or state tax agencies, you’re certainly not the only one. Unpaid tax debt is an unfortunately common problem for many Americans. According to the latest statistics, the IRS has over $1 trillion in uncollected tax debt on its books from delinquent taxpayers.

The reasons people fall behind on their taxes can vary, but common culprits include job loss or reduced income, medical issues, family emergencies, or simple money mismanagement. No matter the cause, the stress of owing back taxes can feel completely overwhelming.

Luckily, there are options available to help get your tax debt under control through tax debt relief programs. In this article, we’ll explain:

  • Why you should act quickly if facing tax debt
  • The types of tax debt relief programs available
  • How to qualify for programs like Offer in Compromise or Currently Not Collectible status
  • Tips for choosing the right solution for your situation
  • Answers to common questions about getting help

Why Should You Act Fast When Facing Tax Debt?

Probably the most important thing to know about tax debt is that you don’t want to ignore the problem, as it will only get worse over time if left unaddressed. The longer a tax debt goes unpaid, the more penalties and interest you’ll accrue on top of the original amount owed. This is why procrastination is one of the worst things you can do – it essentially raises the ultimate price tag of resolving your tax debt.

Some key reasons why acting fast is crucial include:

  • Penalties and interest charges increase your balance owed daily: The IRS charges penalties of 0.5% of your unpaid taxes for each month they remain unpaid, up to a maximum of 25%. On top of that, interest accrues at the federal short-term rate plus 3% annually, compounded daily. These additional costs can add up substantially the longer you delay.
  • The IRS may issue a federal tax lien: After 120 days of non-payment, the IRS can file a Notice of Federal Tax Lien on your property such as real estate. This essentially creates a public record of your debt and makes it harder to get credit or loans until the lien is paid off or withdrawn.
  • Your wages and bank account could be garnished: Eventually, if a tax debt remains unresolved, the IRS is authorized to begin garnishing or levying up to 15% of your disposable pay each paycheck to collect what’s owed, or seize funds from your bank accounts without warning.
  • Statute of limitations is extended: Normally, the IRS has 10 years to collect back taxes from the assessment date. However, if you acknowledge the debt or make a payment on it, the “collection period” is extended another 10 years from that new date.

Given these downsides of inaction, it’s important to contact the IRS right away to discuss options of getting help through an established tax debt relief program. The sooner you engage in the process, the more flexibility you’re likely to have in resolving your balance owed.

Types of Tax Debt Relief Programs Available

If you currently owe back taxes and need assistance, there are a few major programs offered through the IRS that may help lower or eliminate your tax debt burden:

Offer in Compromise (OIC)

An Offer in Compromise allows taxpayers to settle their tax debt for less than the full amount owed if they can prove they cannot pay what they truly owe due to their current financial situation. With an accepted OIC, you pay a lump sum and the IRS agrees to write off the remaining balance. This program helps those who are in deep financial hardship.

Currently Not Collectible (CNC) Status

This is similar to an OIC but is considered temporary relief rather than a full settlement. The IRS essentially agrees not to actively collect your taxes for a period of time, usually 12-18 months, if you cannot pay due to low income or assets. Your tax debt remains on the books but they won’t garnish wages or levy funds during your CNC status period.

Installment Agreement

An installment agreement allows partial payment of taxes owed over an extended period, usually 5-72 months. This prevents collection actions and can buy you time to become compliant. Be aware interest still accrues however until paid in full.

Efforts by Enrolled Agents or Tax Attorneys

Experienced tax professionals like enrolled agents or tax attorneys may have additional strategies beyond these core programs to get penalties abated, negotiate lower settlement amounts, or assist with other collection remedies through specialized advocacy and experience dealing with the IRS/state tax authorities.

The best solution depends on your unique circumstances like income level, ability to pay, and specific type of tax debt (individual, business, or payroll). Consultation with an expert can help determine which tax debt relief program may be most effective.

How to Qualify and Apply for Relief Programs

Since resources are limited and the IRS handles millions of taxpayer accounts, you have to meet certain income and asset criteria to qualify for the major tax debt relief programs. Here are key factors considered:

Income Requirements

Your income must fall below allowed thresholds to show financial hardship, which are based on county averages and number of dependents. Income includes things like salary, tips, interest, dividends, Social Security etc. Loss of job or income reduction works in your favor.

Asset Limitations

Besides your personal residence and vehicles needed for work/health, you cannot exceed equity value limits in other assets like real estate, collectibles, retirement accounts, and so on. Assets must be relatively minimal to show inability to pay.

Filing Compliance

You need to be up-to-date on any newly accruing tax liabilities for the previous 5 years before approval. Those periods must not include any new debts. An amendment getting caught up may be needed first.

Unique Circumstances

Things like medical issues, natural disasters, family death/illness are considered if they severely impacted finances around the disputed liabilities. This helps show cause beyond just lack of funds or income.

Complete an Application

Once income/asset requirements are reviewed, most programs involve submitting forms like Form 433F for CNC status, Form 656 for OIC, or Form 9465 for installment plans. Supporting documents prove your case. User-friendly applications make the process smoother.

With the right facts and documentation, many taxpayers find relief through established tax debt relief programs each year. Reach out for guidance on the options that best match your tax debt and current situation. Taking swift action gets you further along the path towards resolution and compliance.

Frequently Asked Questions

Here are answers to some common questions about getting help with tax debt:

Will using a tax debt relief program negatively impact my credit?

While resolving tax debt late does hurt credit, programs themselves won’t further impact your scores as long as terms are followed. Settling through OIC or obtaining CNC status may actually improve credit over time by preventing garnishing or liens from occurring.

How long will resolved tax debt stay on my credit report?

Settled or paid tax debt will generally stay on your credit reports for 7 years but may impact credit scores less after 2 years from the resolution date. Requesting IRS transcripts showing a “Currently Not Collectible” status can help creditors understand your current situation too.

Is it better to try to negotiate myself or hire professional help?

While you can contact the IRS directly, hiring an experienced enrolled agent or tax attorney well-versed in tax debt relief programs is highly recommended. They can achieve significantly better outcomes by thoroughly understanding procedures, leveraging specialized advocacy, and negotiating concessions that may be unavailable or harder for individuals to secure on their own.

What’s the difference between the IRS and state tax debt?

The IRS handles federal income taxes while each U.S. state taxes income separately with their own agencies and departments of revenue or taxation. Relief programs and collection remedies are similar at both levels but require distinct applications to the IRS and your state(s). Resolve all open tax liabilities concurrently when possible.

How long until tax debt is considered “too old” to collect?

In general, the IRS has 10 years from the date of assessment to actively pursue back taxes owed before expiration of the collection period. However, certain actions like payment agreements or filing an application can extend this “statute of limitations” by another 10 years. Consult a tax pro on your specific situation.

With any tax situations, circumstances differ case by case. Asking these clarifying questions upfront and obtaining guidance from a reputable tax specialist about the process can bring invaluable peace of mind. Seeking assistance to resolve tax debt sooner than later puts you on a better path long-term.

Take the First Step Towards Tax Relief Today

If you’ve been stressed by the weight of tax debts, I hope this overview provided useful insight into available relief through established Tax Debt Relief Programs and next steps to start resolving your situation. Remember, you’re not alone – millions of others face similar challenges each year.

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