IRS tax debt relief – Reasons & Solutions

Monday, November 23, 2015, 6:00 AM | Leave Comment

IRS tax debt has to be the toughest debt situation to be in. This is due to the fact that the IRS has debt collection powers that everyday creditors don’t.

The Internal Revenue Service will make sure they recover the money they are owed. In order to do this, the IRS has the power to seize assets such as bank accounts, wages and social security benefits.

They can also seize physical assets such as real estate, cars and or boats in order to pay off your tax debt.

Many times, the only real option you have in these situations is looking for some form of IRS debt relief.

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A Couple Reasons why people owe tax debt:

  1. Failure to file tax return

    This is one of the most common reasons people get into tax debt. Having tax debt isn’t illegal, but failing to file your taxes is.

    If you fail to file your tax returns the IRS could file a Substitute for Return or SFR. This SFR will typically only list your income without including any deductions. This means you could potentially end up owing a large sum of money plus penalties and interest.

    There are other situations where taxpayers file their federal tax return but forget to file the state tax return.

    If you forget to file your state tax return the state will often times do it for you through a document called an estimated tax return or EST.

    When this happens, the state will not take into account any deductions. As a result, you will be placed in a higher tax bracket where you will probably be taxed at the highest possible rate for total income.

  2. Filing your tax return incorrectly

    This is another one of the common reasons people get into IRS tax debt.

    You might have rushed through the filing process because you were late for work, or maybe you didn’t have time to gather all the information you needed.

    Whatever the case is, if you make this type of mistake just know it will cost you a pretty penny. Accuracy penalties can be as much as 75% of your tax debt.

    If you have experienced either one of these problems, chances are you need to contact a tax debt relief expert.

No one wants to be in a situation where they could potentially lose their home, so it’s important to know what you’re dealing with.

Luckily, there are a few tax debt relief companies out there that are willing to help.

Thousands of Americans turn to hiring a professional tax debt relief company when battling against the IRS.

Before we can give you these 5 tips about IRS debt relief, we also want to inform you about tax return and tax debt penalties.

Penalties for paying or filing taxes late:

  • Late filing

    If you file your taxes past the due date (including extensions) then you might be obligated to pay a failure-to-file-penalty. The IRS says it is “usually 5 percent for each month or part of a month that a return is late, but not more than 25 percent.”

  • Failure to pay penalty

    Your payments are due after you file your taxes. So if you fail to make the payments, you will be charged an extra .5 of every 1% of your unpaid taxes each month. The maximum penalty can be up to 25% of your unpaid taxes.

  • Bounced Checks

    There is a penalty for bounced checks. A bounced check written to the IRS can result in a penalty of $25 if the amount on the check is less than $1,250 or 2 percent of the amount of the check, whichever is less.

5 Options for Tax Debt Relief

  1. Offer In Compromise (OIC)

    This type of IRS debt relief is an agreement made between the IRS and a taxpayer that reduces the tax liability the taxpayer may have for an amount less than what he actually owes. This is one of toughest tax debt relief options used today.

    The IRS will accept this compromise for tax debt reduction only under certain special circumstances:

    • If there is doubt as to how much the taxpayer owes. There must be an authentic argument over how much is owed or you will be denied any tax debt reductions.

    • If there is doubt whether the taxpayer could afford to pay the amount owed. This point is based on the value of the assets the taxpayer owns versus how much he owes the IRS.

    • Settling your debt in full for a reduced amount can eliminate a tax lien.

    To understand more about Offer In Compromise, visit: Offer In Compromises Made Easier

  2. Installment agreement

    Installment agreements are designed for taxpayers who cannot to settle their debt with a lump sum.

    With the fresh start initiative, the IRS has decided to increase the streamline threshold they had before from $25,000 to $50,000.

    This makes it easier for people who are struggling with tax debt to receive tax debt relief. This solution could possibly lower your penalties, but the interest you have will continue to accumulate on the outstanding debt balance.

  3. Penalty Abatement/Reduction

    Penalty abatements are a form of tax debt relief that are only available to those who are first-time noncompliant taxpayers. They can use it to request a reduction for 1 tax period.

    It is often times tied to an installment agreement. You cannot abate interest unless there is interest on the abated penalty.

    Penalties can only be abated or reduced if you are planning to pay the debt in full at one time or through monthly payments.

  4. Currently non-collectable

    If the taxpayer can show proof that he is experiencing extreme economic or personal difficulties where his expenses are much higher than his income then, the IRS may consider halting collections.

    The hardest aspect of this tax debt relief option is showing the necessary proof in order for the IRS to consider this option.

  5. Lien Negotiations

    Lien negotiation is primarily used to get money out of an asset in order to pay your IRS tax debt. The most common ways this is done is through subordination, discharge, release or withdrawal.

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Eliminate your tax debt

Dealing with the IRS is no fun. We want to remind you that they are the strongest debt collection agencies in the world.

Going up against them alone may not be your smartest choice. Consider hiring a tax debt professional to guide and assist you with eliminating your tax debt or getting tax debt reduction.

Receiving tax debt relief from a company is a better option because they have the experience and expertise to deal with the IRS.


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