Paying taxes is a fundamental part of being a law-abiding citizen. But let’s face it: it isn’t always easy. Are you having trouble paying your taxes? Don’t worry–you’re not alone. Fortunately, many tax debt relief options are available to individuals facing various challenges in paying off their tax debts and preventing tax issues from escalating. This article will explain tax debt relief, the options available, and the benefits and steps you can take.
What Is Tax Debt Relief?
Tax debt relief is designed to provide relief and peace of mind to taxpayers struggling with debt. It helps individuals and businesses manage, reduce, or eliminate tax issues based on their unique financial situations. Taxpayers can settle outstanding tax liabilities, get back on track, and reduce stress from the pressure of lingering tax issues.
Tax debt can happen to anyone, and the reasons can vary. However, the common causes are errors in tax filing, missing deadlines, failing to understand tax obligations, ignoring IRS notices, and more uncontrollable causes such as unexpected life events that leave you unable to pay the taxes due.
Tax Debt Relief Options
Offer in Compromise (OIC)
An Offer in Compromise is a debt relief option allowing you to pay tax for less than the total amount owed. There are many different types of OIC specifically designed for different situations:
Doubt as to Liability (DATL): available to those who believe there is an error in the amount owed and want to dispute it. However, note that you cannot dispute DATL if the amount owed has been established by the court or is based on current law.
Doubt as to Collectibility (DATC): The most common type of an OIC, used when taxpayers can’t pay the full amount owed. If the IRS finds reasonable doubt, the debt may be settled for a lesser amount.
Effective Tax Administration (ETA): Designed for those who can technically repay the debt but would face economic hardship if they did so. One must demonstrate that full payment of the amount owed would result in financial difficulties.
Installment Agreements
IRS installment agreements (IAs) are another popular choice for taxpayers facing difficulties paying off their debt. The option stipulates that individuals and businesses can settle the tax owed periodically (usually monthly). Just like an OIC, there are different types of installment agreements that cater to different circumstances.
Guaranteed Installment Agreement: Available for those who owe $10,000 or less (including interest and penalties) and can pay it off in three years. Moreover, you must not have had any IA in the past five years and have filed and paid all tax returns to qualify.
Streamlined Installment Agreement: This agreement is for individuals who owe up to $50,000 in debt and businesses with debts up to $25,000. Requirements include settling the debt within 72 months, the IRS collection time limit (for individuals), and up to 36 months (for businesses).
Partial Payment Installment Agreement: Those who don’t qualify for a standard installment agreement can apply for a partial payment. This type of IA allows individuals to pay off lower monthly installments. However, you need to provide detailed information as to why you can’t pay off the debt, agree to extend the collection statute expiration date, undergo financial review, and agree to payment adjustments when needed.
Non-streamlined Installment Agreement: As the name suggests, this tax debt relief option is for individuals and businesses without a streamlined agreement. Taxpayers who owe more than $50,000 and can’t pay in 72 months can apply for a non-streamlined installment agreement. Direct negotiation will be done with the IRS.
Penalty Abatement
A penalty abatement is a form of tax debt relief that allows individuals to reduce or eliminate penalties caused by failure to pay, file, or deposit taxes on time. Like most tax debt relief options, you must be able to show a reasonable cause and have a good history of compliance, such as having filed all required tax returns and having paid taxes due.
Currently Not Collectible (CNC) Status
A Currently Not Collectible Status is a debt relief option given to individuals experiencing financial hardship who cannot fulfill their tax obligations. When granted a CNC status, the IRS will stop all collection activities, such as wage garnishment, levy, or liens, aiming to give taxpayers a leeway to get things in order. However, note that penalties and interest will still be accrued, but no immediate payment is required.
Individuals must prove their financial hardship by providing detailed documentation such as income, expenses, assets, etc.
Bankruptcy and Tax Debt Relief
Bankruptcy tax debt relief is provided for individuals and businesses when tax debts have become overwhelming and cannot be managed effectively. Two main types of bankruptcy are Chapter 7 (liquidation) and Chapter 13 (reorganization).
In a Chapter 7 bankruptcy, your non-exempt assets are sold off to satisfy the debt; in some cases, debts may also be discharged. Chapter 13, which is only available to wage earners, self-employed, and sole proprietors, is given the chance to create a 3 – 5 year repayment plan.
How to Qualify for Tax Debt Relief
Eligibility Requirements and Factors Considered by the IRS
All tax debt relief options offered by the government or tax authorities take into account your financial situation and the severity of your tax problems. It will examine your income, expenses, and assets and, based on that, evaluate your ability to pay.
Second, most relief options require applicants to have clean records, such as filing all required federal tax returns, making all required estimated payments, and agreeing to cooperate with the authorities.
Third, transparency will be a factor. Evasive or fraudulent behavior will not be tolerated, and a genuine inability to pay is critical.
Financial Documentation Needed
Providing the required financial documentation is critical to successfully applying for tax debt relief. These documents serve as evidence to support your claim for relief, demonstrating that you are experiencing financial hardship and difficulty paying taxes. They may include income documentation, asset information, or expense records.
Steps to Take If You’re Facing Tax Debt
Step 1: Assess Your Tax Situation
The first step is to understand your tax situation: what tax issues are you dealing with? This includes coming to terms with how significant they are. You should also understand the consequences of the problems you’re dealing with. For example, if you receive IRS letters due to late payments, what are the consequences of not complying with the request? Finally, what are your options? In this case, which relief options are most appropriate for your tax problems?
Step 2: Explore Your Relief Options
Your decision to apply for tax debt relief should be based on your individual tax situation. Each individual will have unique problems; as you’ve seen, there are numerous relief options for various tax issues. For example, do you have tax debt and can pay it off, but doing so would put you in a difficult financial situation? Applying for an ETA Offer in Compromise is one option.
Step 3: Apply for Tax Debt Relief
Once you’ve determined the best tax debt relief option for your situation, apply for it diligently. Remember that you’ll need a strong case to prove your point. Prepare all of the necessary documentation to support your case and increase your chances of approval. Check all information to ensure its accuracy. Complete documents and an error-free application are critical to the success of applying for tax debt relief.
Step 4: Stay Compliant Going Forward
Remember that tax debt relief is available to help individuals and businesses manage and settle debts and start over. Take advantage of this opportunity to clear yourself or your business of any tax issues and ensure that they don’t occur again in the future. When dealing with taxpayers, the IRS and other tax authorities take into account previous compliance and activity. So, the cleaner your records are, the better the chances that the authorities will grant your request.
How Greenberg Law Group P.A. Can Help With Tax Debt Relief
Maintaining compliance with your tax obligations can be difficult, especially when dealing with various financial problems. Furthermore, numerous tax regulations and their complexities can cause problems even for those who have been compliant in paying and filing taxes on time, such as errors in providing information or understanding the tax laws.
Expert assistance with tax issues, such as understanding tax debt relief options, applying for them, and dealing with any correspondence with the authorities throughout the process, can greatly benefit taxpayers and help them achieve their goals. Greenberg Law Group understands tax debt relief all too well. Our team will handle all your tax problems and ensure that you apply for the best tax debt relief for your situation. You want to get the application right first, and our team can help you.
In the world of tax, time is of the essence. So, don’t wait and act immediately. Contact Greenberg Law Group P.A. and get the expert assistance you need to effectively solve any tax issues you’re facing.
