Updated: Jan 1
Will the IRS put me in jail? Will the IRS garnish my paycheck? Will they put a lien on my property?
These are the questions going through your head when you open the mailbox and pull out that letter from the IRS. Then as you read the balance and payment date pay your throat begins to close, your feet feel like lead, and your chest starts to tighten because you know you can't pay it. Not now, not by the due date, and as a matter of fact it feels like you'll never be able to pay it.
Breathe! You have options my friend.
If you truly can't pay your tax balance in full the IRS will work with you to make payment arrangements. There are actually four options to pay your tax debt and avoid having a tax lien filed against your property or your bank accounts levied (we have to protect you!). The four options are:
An installment agreement is essentially a payment plan that the IRS allows taxpayers to set up when they aren't able to pay their obligation in full but they can pay it over time. This is great for people who just need more time but be mindful that even though you now have more time this is like most payment plans, it's not free. There is a fee to set it up with the IRS and interest also accrues on the balance due.
Note: If you have a properly structured installment agreement set up your interest rate will be cut in half! Want to make sure you don't overpay in interest and potentially penalties? Book a call with my team to see if we're a good fit to step in your shoes and set that agreement up for you at https://bookingbowens.as.me/taxrelief
There are 3 types of installment agreements: Streamlined, Regular, and Partial Pay. You can find out more about these types of arrangements in a previous post that I wrote, Owe the IRS? See How You Can Arrange Payments (Installment Agreements). Let's take a look at what your options are if you can't pay off the debt in the amount of time the IRS has to collect from you.
Offer in Compromise
This is the most popular, however not most commonly successful, option to resolve your IRS tax debt. There are so many commercials and ads now giving empty promises to settle taxpayers tax debt for pennies on the dollar. This is possible but not all 14 million+ tax accounts that owe the IRS will qualify for it.
You may know it better as the IRS Fresh Start Program. Although that's only part of the IRS Fresh Start Initiative Program.
An OIC gives taxpayer's a fresh start by allowing them to settle their tax debt for less than they actually owe. Essentially wiping the tax slate clean, good as new. There are 4 different types of OIC: Doubt as to liability, Doubt as to collectability, Doubt as to collectability, and Effective tax administration.
Just as with any great reward, the work is great as well! To qualify for an OIC you have to be comfortable with having the door to your finances wide open and welcoming the IRS right in to take a seat.
The first step is to complete Form 433-A to determine your reasonable collection potential. If this form is a little intimidating you can also use the IRS pre-qualifier tool. However, if you do qualify you'll already have Form 433-A filled out to turn in to the IRS to make your offer. After you complete your Form 433-A you may find that even the IRS agrees that you can't pay anything right now but you don't qualify for an OIC. CNC may be perfect for you.
Currently Non Collectible
Putting your tax account in Currently Non Collectible status is the only way you can have a tax assessment by the IRS, not make payments, and be protected from the IRS taking any enforcement action. Yes, you did read that correctly!
To qualify for currently non collectible status you have to show the IRS that your current monthly income is not sufficient to cover your monthly expenses and paying the IRS would put you out.
Note: Qualifying for CNC status does not resolve the debt. The liability still exists and interests continues to accrue. However the clock continues to tick on the statute of time the IRS has to collect from you AND you're protected from the IRS issuing a tax lien or levy due to your balance.
Last but surely not least, there is bankruptcy.
Bankruptcy will not be the right choice for everyone but can be very effective for those that do qualify to use it to eliminate their tax debt. Think about it, there is no reasonable contribution potential, no fight with the IRS, and no appeals. Sometimes it's even cheaper than messing with Uncle Sam.
If you are considering a bankruptcy to resolve your tax issues there are 6 things you have to keep in mind: Three-year rule, two-year rule, 240-day rule, no fraud, no trusts taxes, and no SFR. So what does all of that mean?
The tax year that you are hoping to have discharged must be at least 3 years old. If you are a late filer it must have been on file with the IRS for at least 2 years and any assessment by the IRS has to be at least 240 days old ( you didn't think the IRS was going to make this easy did you?)
If you are able to meet the first three requirements you're not in the clear yet. There are three more you have to meet before you can have this tax debt discharged in a bankruptcy. No civil or criminal penalties due to fraud may be discharged, no taxes from trusts, and no SFRs may be on your account. An SFR is a substitute for a return is what the IRS creates when you don't have a return on file.
None of these (with the exception of a streamlined installment agreement) are an overnight or instant solution but they will get your tax debt resolved. We want to protect you from tax liens, tax levies, and from the anxiety that comes along with owing the IRS.
You have the information you need to release your fear of facing the IRS. If you don't want to fight the IRS alone you don't have to! Book a call with my team to see if we're a good fit to get in the ring and fight the IRS for you at https://bookingbowens.as.me/taxrelief.
Now that you have the information you need to face the IRS which option are you going to use? Let me know in the comments and don't forget to subscribe and share!
Timalyn S. Bowens EA is Louisville's Expert Tax Consultant and Your Favorite EA. As the owner of Bowens Tax & Bookkeeping Solutions she and her team will work hard to find a legal solution that is customized for you!
When you are facing questions regarding your personal or business taxes, working with a professional makes all the difference. Visit our website at www.bowenstaxsolutions.com for more information.