What are your options for dealing with tax debt

April 24, 2019

After a busy 2019 tax season, some of our clients from the Denver, Aurora, Littleton and surrounding areas owe the Internal Revenue Service (IRS) versus getting a refund. While a large tax bill can certainly be overwhelming, Advanced Tax Solutions is here to give you the IRS debt repayment assistance you need. 

No matter what, always remember to file your taxes even if you think you can’t pay what you owe. Not filing your taxes can result in even larger fees and penalties. Once you are informed that you owe, you do have a few options to help pay down your IRS tax debt. We always recommend that if you are financially able you pay off the tax debt immediately, but in which case you can’t you can enroll in a short-term or long-term repayment plan.

Short-Term Repayment Plan: 120 Days in Full

If you can’t pay your tax bill immediately, you can opt to pay your tax bill in full within 120 days. Start by paying as much as you can, then arrange this repayment with the IRS. The 120 days in full option does not accrue a fee, but it does accrue interest and penalties. 

Short-term repayment plans are a great option - as long as you are sure that you can afford them. Try to avoid emptying all of your accounts to pay back an IRS debt, by doing so you can put yourself in a sticky financial situation and that is the last thing you want to do. If you are ever unsure of what the best option is for you, contact us at Advanced Tax Solutions. We are here to help.

Long-Term Repayment Plans: Installment Agreements

If you are in need of more time than 120 days (four months), than you can opt to utilize an installment agreement to help pay your tax debt. There are a few different options you have in terms of long-term repayment plans, including: 

Automatic Withdrawals:

These plans are designed to be automatic withdrawals through directly debited from your bank account. 

General Repayment:

You will owe similarly to the automatic withdrawal plan, but for this installment agreement you need to pay with card, check, or money order. You are able to restructure or reinstate your installment agreements after setting up an initial agreement, but small fees might apply.

Enrolling in a Payment Plan

Your eligibility for payment plans will depend on your current tax situation. Generally, you can qualify for the short-term and long-term repayment plans based on the following:
  • Long-term repayment plans: Your taxes, penalties, and interests total less than $50,000 or less. 
  • Short-term repayment plans: Your taxes, penalties, and interests total less than $100,000.
When applying for an online payment plan you will need to gather all of your personal information including name, address, social security number, and additional contact information. If you are not applying for a payment plan as an individual, but instead as a business or as Power of Attorney you will need additional information that can be found here.

Offer In-Compromise

An offer in compromise allows you to settle your debt for less than what you owe. You might get approved for this if you have financial hardship, or can’t pay your full tax liability. In order to apply for an offer in-compromise, you do have to have filed all previous taxes. It is important to note that offer in-compromise is very rarely approved and should be viewed as a last resort. 

Penalties and Interest

No matter what you decide, if you do not pay off your debts right away they will accrue interest rates, and some penalty rates. Penalties are accrued for a number of different things, the most common of which being failure to file, failure to pay, failure to pay the proper amount, and a bounced check. It is possible that you may qualify for relief from penalties - learn more about penalties and interest by visiting the IRS website

Can’t pay?

If you can’t make payments on your IRS tax debt, you do have another option. It’s possible to apply for a leniency due to hardship. In order to apply for this, you will need to demonstrate that paying your tax debt would cause enormous burden to yourself and your family. You could also look into a no interest credit car, personal loan, but don’t feel the need to take drastic measures. You don’t, and shouldn’t, feel the need to declare bankruptcy to help repay the IRS. 

You can request a payment deferment which will move your account into a currently not collectible status (CNC) - which will keep your account on pause until you are able to resume making regular payments. The IRS will continue to reach out to you and keep in contact until you are able to make your payments.

Can I just ignore the IRS?

In short, no. Do not ignore the IRS’ request for tax debt repayment. When you ignore the IRS request, your account will become delinquent. Delinquent accounts will often be turned over to the IRS’ Automated Collection Systems (ACS) and they will attempt to collect payment from you. If the IRS is unable to collect on your account, they might pursue a federal tax lien. A federal tax lien lowers your credit score and if you decide to sell property gives the IRS the first change to purchase your property. 

If you don’t resolve anything, or set any type of repayment arrangement within 30 days, the IRS will start their collection process. The IRS has the right to levy your bank account, garnish your wages, acquire your property and even withhold your passport.

Tax repayments will depend on your individual situation and depend on how quickly and timely you reach out to the IRS. The IRS might even recommend refinancing your home in situations where you are unable to pay your debt. If you are ever unsure of what your best option is, contact our Advanced Tax Solutions team today to learn how you can successfully navigate tax repayments. We are ready to provide tax debt help and answer any of your questions and requests.
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