Debt Settlement with the IRS - will it go away?

Tax debt occurs when taxpayers do not pay the full amount of taxes they owe on their income. If taxpayers do not address their tax debts promptly, they can face penalties and interest on the unpaid balances, or even have their assets seized. Thus, the IRS offers several debt settlement programs to help taxpayers who are struggling to pay their tax debts. These programs are designed to provide relief and make it easier for taxpayers to settle their outstanding tax debts.

  1. Innocent Spouse Program: This program is designed to protect spouses from being held responsible for the tax debts of their partner if they were unaware of, or had no involvement in, the misreporting or underreporting of income or other tax-related issues.
  2. Installment Agreement: An installment agreement allows taxpayers to pay their tax debt in smaller, more manageable monthly installments over time. This option is suitable for those who cannot pay their tax debt in full immediately but can afford to make regular payments.
  3. Wage Garnishment: When taxpayers fail to resolve their tax debts, the IRS may resort to wage garnishment. This means that a portion of the taxpayer’s wages is withheld by their employer and sent directly to the IRS to cover the outstanding tax debt.
  4. Offer in Compromise: The Offer in Compromise program allows taxpayers to settle their tax debt for less than the full amount owed. It is an option for individuals who can demonstrate that paying the full amount would cause undue financial hardship or if there is doubt as to whether the tax liability is correct.
  5. Statute of Limitations: The statute of limitations is the time limit within which the IRS can take legal action to collect taxes. Generally, the IRS has ten years from the date of assessment to collect outstanding tax debts. Once the statute of limitations expires, the tax debt is considered uncollectible.
  6. Currently Not Collectible (CNC): If a taxpayer is facing financial hardship and cannot afford to pay their tax debt, the IRS may classify their account as “currently not collectible.” This status temporarily suspends collection activities until the taxpayer’s financial situation improves.

Are you eligible?

Eligibility for IRS debt relief programs varies depending on the taxpayer’s financial circumstances and the specific program. It is essential to note that each debt relief program has specific requirements and documentation that must be provided to the IRS to determine eligibility. Failure to address the requirements of IRS debt relief programs can lead to the rejection of the application. As such, individuals seeking IRS debt relief should consult with a tax professional or tax debt attorneys to determine their eligibility and the most suitable program for their situation. Some of the key IRS debt relief programs and their general eligibility criteria include:

Innocent Spouse Relief:

  • Eligible taxpayers must have filed a joint return with their spouse, and the tax liability must be due to the other spouse’s erroneous actions.
  • The taxpayer must demonstrate that they did not know about the errors and had no reason to know about them.

Installment Agreement:

  • Taxpayers who owe $40,000 or more in combined individual income tax, penalties, and interest can usually qualify for online payment agreement.
  • The taxpayer must be current with all required tax filings and have the ability to pay off the debt within a specified time frame.

Wage Garnishment:

  • The taxpayer must be employed and have a current income from which an employer can hold a certain portion of the taxpayer’s wage to satisfy a tax debt. 

Offer in Compromise:

  • The taxpayer must demonstrate that paying the full amount would create a financial hardship or that there is a legitimate doubt as to the amount of tax owed.
  • The taxpayer must be on current tax obligations, has filed all federal tax returns, and does not have an open bankruptcy case.

Currently Not Collectible (CNC):

  • The taxpayer must demonstrate that they are unable to pay their tax debts due to financial hardship, such as unemployment, significant medical expenses, or other financial difficulties.

We invite you to learn more about the current available Tax Debt Relief Programs.

Will these programs cancel my debt?

IRS debt relief programs do not automatically cancel tax debt. Instead, these programs provide options and opportunities for taxpayers to settle their tax debts through various means, such as payment plans, reduced settlements, or temporary suspension of collections. The goal of these programs is to make it more manageable for taxpayers to pay off their tax debts based on their financial circumstances.

It is crucial to understand that IRS debt relief programs are not a way to evade tax obligations entirely or have debts canceled without legitimate reasons. Taxpayers must meet specific eligibility criteria and provide evidence of their financial hardship to be considered for these programs. Failure to pay off tax debts under conditions set by these programs can lead to wage garnishment or assets being seized. 

For anyone facing tax debt and considering IRS debt relief options, it is essential to seek professional advice from a tax consultant or a tax attorney who can guide them through the process and determine the most suitable program based on their unique financial situation.

I’m considering filing for bankruptcy, does it work?

Filing for bankruptcy may potentially allow for the discharge of certain tax debts, but the rules surrounding tax debt discharge in bankruptcy are complex, and not all tax debts are eligible for discharge. The ability to discharge tax debts through bankruptcy depends on several factors, including the type of tax debt, the age of the debt, and the specific circumstances of the taxpayer.

Given the complexities involved in discharging tax debts through bankruptcy, it is crucial to seek professional advice from a tax attorney. They can help you understand your specific situation, navigate the legal requirements, and determine whether filing for bankruptcy is a viable option for discharging tax debts.

Frequently Asked Questions

How much will the IRS usually settle for?

The amount the IRS will settle for in tax debt varies widely based on the individual's financial situation, assets, income, and expenses. The Offer in Compromise program allows eligible taxpayers to settle their tax debt for less than the full amount owed if they can demonstrate that paying the full amount would cause them significant financial hardship or if there is doubt as to the tax liability.

Is it possible to settle IRS debt?

Yes, it is possible to settle tax debt through various debt settlement programs offered by the IRS, including installment agreement, wage garnishment, and offer in compromise. It is important to note that while IRS debt settlement programs offer relief options, they have specific eligibility criteria and require careful application and documentation. Seeking professional advice from a tax attorney can be beneficial in reaching a successful debt settlement arrangement with the IRS.

Who qualifies for IRS debt forgiveness?

IRS debt forgiveness allows eligible taxpayers to settle their tax debt for less than the full amount owed. It is essential to note that the IRS reviews debt relief applications on a case-by-case basis, considering factors such as the taxpayer's income, expenses, asset equity, and future earning potential. In general, the taxpayer must be in good standing when filing taxes. Given the complexities of the OIC program and the strict requirements for eligibility, it's advisable to seek professional assistance from a tax attorney experienced in dealing with IRS debt settlement matters. They can help determine whether you qualify for IRS debt forgiveness and guide you through the application process.

Thank you for trusting Global Gate Taxes to help you during a tough financial situation. You are not alone, millions of Americans are going through hardship and a way to get this fixed is by scheduling a consultation with our tax specialists.