IRS tax debt is a serious issue that can negatively impact your financial situation and long-term goals. Fortunately, you can work with a tax attorney to settle your tax debt with various IRS offers for debt relief. To get help, contact our attorneys for tax debt resolution services now. The word "taxes" and how to settle IRS tax debt.

Key Takeaways: Settle Your Tax Debt

  • ✔ Streamlined Agreements: Taxpayers owing under $50,000 can qualify for 72-month plans without financial disclosure.
  • ✔ Offer in Compromise: Settle debt for a lump sum using Form 433-A (OIC) or Form 433-B (OIC).
  • ✔ CNC Status: Protects those earning under $84,000 annually from collection if basic living expenses aren’t met.
  • ✔ Partial Pay (PPIA): Allows you to pay off debt until the Collection Statute Expiration Date occurs.
  • ✔ Innocent Spouse Relief: Provides a path to escape liability for errors made on joint returns by a former spouse.

Will I Go to Jail for Unpaid Taxes to the IRS?

One of the biggest concerns about IRS tax debt is the possibility of jail time for unpaid taxes. However, while unpaid IRS debt will undoubtedly hurt your credit or lead to financial penalties, back pay debt will not result in jail time. However, there is a big difference between unpaid back taxes and criminal tax evasion. Tax evasion is a criminal act that occurs when an individual intentionally under-reports taxable income for the purpose of paying less money to the government. Being in debt with the IRS means that you have correctly filed your taxes, but you are having trouble making the payments you owe.

Does the IRS Allow for Payment Plans?

The IRS is highly motivated to help taxpayers with resolving tax debt. This is why the IRS agrees with many proposals for debt settlement. Whether you owe the IRS $10,000 or more than $50,000, there are payment agreement options that will allow you to bundle debt and interest into monthly payments.

Partial Pay Installment Agreement

The Partial Pay Installment Agreement (PPIA) is a payment plan that allows taxpayers to pay off debt until the liability for those taxes expires. This method allows taxpayers to avoid levies and prevents new balances from accruing. The IRS can review or change this agreement depending on your qualifications, such as expenses and proof of income. This isn’t the only way to work the collection statute expiration date to your advantage.

Streamlined Installment Agreement

The Streamlined Installment Agreement (SLIA) is designed for taxpayers who owe less than $50,000 to the IRS. Generally, this payment agreement will ensure that all debt is paid in full. This plan allows taxpayers to avoid levies, does not require financial information disclosure, and can last for up to 72 months.

Full Pay Installment Agreement

The Full Pay Installment Agreement is another plan that allows taxpayers to pay off all debt through monthly installments. Usually, this payment option is designed to pay off debt with the IRS in six years or less. This plan can help taxpayers avoid collection actions, which can reduce impacts on credit scores.

Choosing Long-Term vs Short-Term Payment Plan

Making monthly payments to the IRS through installment plans is one way to avoid hefty financial penalties, wage garnishments, and more. However, taxpayers will need to be sure to pick a plan that will save the most money and have the lowest impact on monthly income. Long-term payment options are generally the best way to minimize the overall financial cost of paying down IRS debt, which is often why long-term plans like PPIA are so hard to qualify for. Short-term plans typically have higher required estimated payments and may maintain prior liens filed against you until all debt is paid off.

How Are Payments Made?

There are a few ways taxpayers can pay a tax bill. For monthly installment plans, payments can be made by check, money order, direct debit from a checking account, or by enrolling with the IRS Electronic Federal Tax Payment System (EFTPS). If you are comfortable linking your bank account to your account on the IRS website, this is usually the best option since it reduces the risk of missing a payment.

What Is an Offer in Compromise?

For taxpayers in debt with the IRS, one of the best options to wipe out all tax debt is an offer in compromise. OIC is a plan sponsored by the IRS that allows qualifying individuals to make a lump sum payment for tax debt, even if the settlement offer is less than the original tax debt. The IRS looks at factors such as expenses, total income, assets, and the ability of the taxpayer to pay current-year taxes. Under this plan, taxpayers can settle tax debt for pennies on the dollar since sometimes the payment can be as much as $5, even if thousands are owed to the IRS. However, this plan can take up to a year to be approved, and very few taxpayers can qualify. To apply, you need to share detailed information about your individual finances with Form 433-A (OIC) and/or business finances with Form 433-B (OIC). You can appeal an OIC rejection, but whenever possible, it’s best to work with an attorney who can guide you in the right direction and help you get approved the first time.

Who Can Use This Debt Settlement Method?

Qualifying for the OIC agreement is difficult for most taxpayers. To be eligible, taxpayers must be caught up on payments for the current year and must also meet certain criteria. The IRS is more likely to accept OIC petitions from taxpayers who have a legitimate dispute about overdue taxes or taxpayers who would experience severe financial hardship if they paid a tax bill in full.

How Can You Qualify?

To qualify for this tax settlement plan, the IRS will examine the taxpayer’s overall financial situation and ability to assess if the taxpayer will ever be able to pay off their total debt. Typically, this means the IRS will make projected calculations about future taxes if the taxpayer’s annual income does not change. There are other strict regulations related to the tax code that are also considered by the IRS.

What Is Innocent Spouse Relief?

In some situations, tax debt may be owed by innocent individuals who were formerly married to a spouse who filed taxes incorrectly. Innocent spouse relief is designed to relieve spouses of tax liability for tax debt that is owed by a former spouse. Typically, if taxpayers want to use this debt relief plan, it is very difficult to qualify without the help of a tax attorney. This is because taxpayers will need to prove their innocence, such as by providing evidence that the innocent spouse was ignorant of inaccurate tax representation.

How to Qualify for This Debt Relief Plan

To qualify for this debt relief plan, taxpayers will need professional help to file the correct forms and gather evidence to prove their innocence. A spouse in collectible status from the IRS is typically an individual who filed joint tax returns where certain items were deliberately or accidentally erroneous. A spouse may also qualify if they are married to a business owner who has fallen behind on tax payments.

What Is Currently Not Collectible?

Currently not collectible (CNC) is a status that allows taxpayers to be exempt from federal tax deposits. Essentially, this status will protect the taxpayer from IRS debt collection methods, including penalties, liens, and other consequences.

Is CNC a Permanent Option?

It’s important to understand that CNC is a status that will help with monthly expenses by temporarily reducing tax debt. This status means that any money owed to the IRS will be deferred until the taxpayer is in a better financial circumstance to pay off the remaining balance of overdue taxes or otherwise qualify for a second settlement agreement. This status is not long-term for most tax issues.

What Are Eligibility Requirements?

People who are eligible for this status are those who have very little income, as well as those who are unable to make tax payments because their monthly income is less than their monthly expenses. Taxpayers will have to submit several forms to the IRS, along with a collection information statement and other detailed information about the individual’s financial means. The main eligibility requirements include an income of less than $84,000 a year and proof that you have no leftover income after paying for basic living expenses. You may also have to prove that your only income is from the government, such as unemployment benefits, Social Security benefits, or welfare benefits.

What Is the Best Method to Settle Tax Debt?

Whether you want to qualify for a lump sum payment or you want to settle IRS debt through another method, the best way to settle your tax debt is with the option that looks out for the best interests of your financial capability. The goal of settling your debt with the IRS is to improve your finances with a repayment plan that will not negatively impact your quality of life. Working closely with a tax professional is the best way to assess which settlement plan or tax status is ideal for you.

How Can IRS Tax Debt Affect You?

People who have a delinquent status with the IRS are more likely to experience serious financial impacts, such as the levy or seizure of bank accounts, retirement accounts, Social Security benefits, and even wages. For some people, significant debt can even affect the ability to apply for certain programs and may impact available credit.

Do You Need a Tax Professional to Apply?

The documents that must be submitted to the IRS to qualify for any debt relief plan are usually complicated. The IRS accepts applications that are filled out correctly and include verifiable information, such as income documentation and other assets. Errors on your application may result in the IRS rejecting an application. Tax professionals can give you step-by-step instructions to ensure your application is considered.

What Is the Role of a Tax Attorney?

When you have a complicated tax case, the role of a tax attorney is to give you the best advice about how to reduce the debt you owe to the IRS, even temporarily. An attorney will be able to guide taxpayers through every viable option to pay down IRS tax debt and more.

Tax Knowledge

A tax attorney has specific knowledge about the US regulations that may apply to an individual’s situation. This can protect an individual’s assets and help an individual meet the eligibility criteria for debt settlement agreements.

Long-Term Assistance

Although a preliminary proposal to reduce debt is important, one of the benefits of working with an attorney is the prospect of long-term assistance. Paying off a tax debt is typically a process that can take years, so working with a professional can help taxpayers create a long-term plan to reduce debt and plan for future required tax returns.

Time and Money Saving

Working with an attorney for debt relief can also save taxpayers significant time and money. A professional can help taxpayers quickly identify solutions that are most appropriate for the individual’s income and budget. Filing the correct application can also save the taxpayer money in the long run. Although owing money to the IRS is a serious issue, being in debt doesn’t automatically mean jail time. Instead, the IRS has several repayment options and tax statuses to help everyday Americans settle IRS debt. To learn more about your options, contact Seattle Legal Services, PLLC at 206-536-3152 today.