IRS Back Taxes - Income Tax Debt - Options for Financially Struggling Taxpayers

One of the questions our IRS tax relief team are asked is, "I owe the IRS for back income taxes, what are my options?" Many taxpayers, who are in a difficult financial situation, have heard about the Offer in Compromise program. These taxpayers want to know if they can settle with the IRS.

Not everyone is eligible or qualified to settle with the IRS, but, if you are eligible, you should take full advantage of the Fresh Start Initiative. Presently, at the time of this writing, the IRS is approving approximately 42% of the Offer in Compromise submissions they receive.

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These are you options when you have an IRS Income Tax Debt:

Installment Agreement: Taxpayers can always consider entering into a payment plan with the IRS. The IRS will label a taxpayers as compliant when entered into an Installment Agreement. The amount of IRS notices will be reduced. The IRS will consider the case closed with a resolution.

When to use an Installment Agreement: The easiest way to answer that question is to find when a taxpayers should not enter an payment plan. If you, the struggling taxpayer, has a large income tax debt and you can only afford the minimal installment payments another option may be more desirable. 

Installment Agreement Pros:  The IRS will be content so you won't have "that problem." The IRS won't send you any more threatening notices. 

Installment Agreement Cons: Interest and penalties all continue to increase. Your income tax debts will take years to pay off. If you default, the IRS will levy you.


File and/or Amend your Income Tax Returns: A taxpayer  can lower their income tax debt by having an experienced tax preparer file an amended income tax return. A taxpayer can also engage an experienced and reputable tax preparer file your income tax returns that are missing. The penalties for non-filing can be reversed and eliminated if done correctly.

When to Use: Filing an amended or missing income tax return should always be used because of the direct reduction in your income tax liability. If you have not filed an income tax return, the IRS can file what is called a "Substitute for Return" which is not a tax return. The IRS will give you minimal deductions and exemptions. The IRS will pile on penalties for non-filing.

Pros: Decrease in your income tax liability. Potential penalty and internet abatement.

Cons: Takes extensive knowledge of the Income Tax Code. Takes extensive knowledge of the Statute of Limitations. 

Offer in Compromise: The IRS, several years ago, expanded the eligibility requirements for the Offer in Compromise program. The expansion is called the Fresh Start Initiative. If you are struggling to make ends meet, this is, most likely, the way for you go. The IRS has a complicated financial formula that takes into account your assets, monthly income and expenses.    

When to use the Offer in Compromise: When a taxpayer is struggling financially. Has few if any assets. Taxpayer must be compliant with their tax returns. That means you have no delinquent returns.

Pros: A taxpayer can settle their entire IRS income tax debt. A taxpayer can keep certain assets. A taxpayer can get a Fresh Start.

Cons: NONE.


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