IRS debt – Ways to consolidate your back taxes

People who have dealt with the Internal Revenue Service (IRS) before know how much of a herculean task it is come out of their grip unscathed. This federal tax collection body is entrusted as the guardian of the nation’s tax code. However, if the ground realities are to be considered, then people are bound to face financial crisis at any moment that may force them stop making tax payments and spend those money on more pressing issues. For instance, they may be paying for credit card debt consolidation programs in order to free up some extra dollars so as to make both ends meet.

Should we work with a tax attorney?

Tax attorneys can help tax payers who may have qualified for Installment Agreements, Currently not Collectible program, Offer in Compromise plan. However, the IRS is very strict with their approval ethics and hence a good number of tax relief applications get rejected by hem. So, in this matter these tax attorneys can help a tax payer prepare his financial documents in line with the IRS requirements and fill in the application correctly.

What are the IRS tax relief options?

The IRS has been quite considerate to float the following tax debt relief plans so as to help people in financial problems resolve them amicably:

  1. Deferred payment plan – This refers to the ‘Currently not Collectible’ or CnC plan of the IRS. Under this plan, the IRS confers this status of CnC on delinquent tax payers that grants them a year’s (or as determined by the agency) relief from all collection efforts. The status remains valid till the time tax payers regain their financial stability. However, the IRS may liquidate a tax payer’s asset before conferring the CnC status on him/her.
  2. Tax debt settlement plan – Formally, this plan has been named as ‘Offer in Compromise’(OIC) program. Under this plan, tax payers with overwhelming tax debt can afford to make subsidized payment. However, this will be only possible if they can prove their financial hardship to the IRS. Before approving any OIC application, the IRS determines whether or not an applicant completely justifies the clauses like doubt as to collectability. Moreover, the IRS conducts a means test in order to convince itself about the concerned tax payer’s financial instability. The test is based on the person’s current disposable income, monthly expenditures & liabilities, and personal properties.
  3. Flexible payment plan – There is ample chances for large number of people to get disqualified for the above tax relief programs. So, in this case the IRS has devised another tax repayment plan known as Installment Agreement. Tax payers are permitted to pay off their debt of less than $25,000 over an extended period of 5 years. In this plan, they have to repay their entire tax debt along with all the accumulated interest within the said 5 years period.

However, if they have more than $25,000 as tax debt, then the IRS turns a lot more hostile towards them. However, with proper guidance of the tax attorneys, these tax payers can get a partial repayment plan approved by the tax collection agency and become debt free all over again.