Tax debt can quickly become unmanageable. Three tips for those who are struggling to manage this form of debt include:
- Currently Not Collectible. Taxes who are unable to pay taxes and living expenses may be able to receive a “Currently Not Collectible” status. This status will result in a temporary hold. The IRS will review any applicant’s financial status to confirm they are facing serious financial hardship before approving this request.
- Payment plans. The agency offers this option for taxpayers who simply need more time to pay their tax debt. The agency offers two options: a short-term plan that spans 120 days or less, or a long-term plan for those who need more than 120 days. It is important to note the agency will continue to apply fines and penalties to the debt while the taxpayer makes installment payments.
- Offers in compromise. In some situations, the Internal Revenue Service (IRS) will consider settling a taxpayer’s tax debt for a smaller amount than owed. The IRS will review the taxpayer’s ability to pay, assets, income and expenses before deciding to accept or reject a proposed offer. It is important to note that those who file for an offer will need to pay an application fee, almost $200, as well as an initial payment. These are both nonrefundable, even if the agency rejects the proposed offer. As a result, it is wise to carefully consider this and other options before moving forward with a proposed offer.
There are benefits and risks with each option. As a result, taxpayers are wise to seek counsel with an attorney experienced in the full impact of these options to help provide guidance managing tax debt.