How to Find Tax Debt Relief

Do you dread the annual April 15 tax filing deadline?

It’s even worse if you owe the IRS back taxes and haven’t yet worked out a plan to pay off that debt. In that case, instead of a filing deadline, your tax debt is more like a ticking time bomb.

It may surprise you, but the best way to defuse that tax debt time bomb is to work with the IRS. They may seem like the enemy when you owe them money, but they also offer various ways to help you pay off your tax debt.

This article covers different forms of IRS tax debt relief and how to get it. It also outlines the consequences of failing to deal with that debt. 

What Is Tax Debt Relief?

Federal tax debt relief can be anything that helps you pay what you owe the IRS. This can include more time to pay or a reduction in the amount you owe.

The right tax debt relief can help clear up your back tax problems while minimizing the negative impact on your financial life.

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IRS Tax Debt Relief Programs

Believe it or not, the IRS understands that it can be difficult sometimes to come up with the money to pay your taxes. They still want what you owe, but they have a variety of ways to help you deal with your tax problems. 

Some examples are described below.

Filing extension

If you aren’t going to be able to get the information you need to file your taxes by the April 15 deadline, you can apply for an extension of time to file. 

The bad news is that a filing extension does not get you out of paying what you owe without interest or penalties. You are expected to estimate and pay what you owe by the April 15 deadline.

The good news is that getting an extension gives you until October 15 to prepare your taxes without incurring penalties for late filing.

Short-term payment plan

You can apply for a short-term payment plan if you don't have the money to pay your taxes. This gives you an additional 180 days to pay, and there’s no fee for this plan if the amount you owe is paid in full by the deadline.

Installment payment plans

If you don’t expect to be able to pay your taxes in full within 180 days, you can apply for an installment payment plan.

An IRS installment payment plan sets up a series of monthly payments over three to 10 years. There are costs including a fee to set up the plan plus interest and penalties. 

However, establishing a payment plan stops the IRS from garnishing your wages or seizing your assets. It also saves you from potentially steeper financial penalties and possible criminal prosecution. 

IRS Fresh Start Program

The IRS Fresh Start Program is a broad term for a series of measures put in place to make it easier for people with tax debt to work with the IRS. 

The Fresh Start Program raised the threshold of debt necessary for the IRS to place a lien on your property as security against back taxes. It also made it easier to file an offer in compromise, which is explained below. 

Offer in compromise

An offer in compromise is an agreement to pay less than the full amount of tax debt that you owe. You have to file a request for an offer in compromise, and the IRS has to approve your request for it to take effect.

With an offer in compromise, you file documents with the IRS comparing the amount you owe to the value of your assets, and you list your expected income over and above basic living expenses.

A formula based on that information determines how much of your debt you can reasonably be expected to pay, and you are given two years to pay that amount. If you meet that obligation on time and in full, the IRS discharges the remainder of your tax debt.

There is an application fee for an offer in compromise, but this may be waived if you qualify as a low-income taxpayer.

How Does Tax Debt Relief Work?

These tax debt relief programs don’t kick in automatically. You have to apply for them and be accepted.

If the IRS accepts your application for tax relief, it will suspend any other collection efforts as long as you continue to meet the terms of the program. If you satisfy those terms in full, there should be no further consequences. 

However, that only applies to tax debts you acknowledged in applying for the program. It is not a universal amnesty from all tax debt.

Who Needs IRS Tax Debt Relief?

If you need tax debt relief, you’re not alone. Millions of Americans are in the same boat. 

IRS statistics show that as of 2020, there were more than 8 million delinquent tax accounts. These accounts owed an average of over $13,000 each.

However, it should be noted that at the same time repayment plans had been set up for millions of delinquent taxpayers. So, the system is set up to help you pay your taxes if you’re willing to try. 

How to Get Tax Debt Relief

You can apply for any of the IRS tax debt relief programs online at www.irs.gov. 

To apply, submit your tax debt information and financial resources. Then (hopefully) the IRS approves a payment plan according to the terms of the program. 

There’s one other important requirement. You have to be up to date in your tax filings in order to qualify for one of these tax relief programs. 

These programs are not intended to be a substitute for filing your taxes. Only by being up to date with your tax filings can the full amount of your tax debt be established. The payment plans are then based on that amount. 

What if You Don't Pay Your Taxes?

If filing back taxes and applying for one of these tax debt relief programs seems like a lot of trouble, consider the alternatives. The consequences are even worse if you don’t file your taxes and don’t come to terms with your tax debt.

Some of those potential consequences are outlined below. 

Interest and penalties

If you’re late paying your taxes, you’re likely to face some extra costs in the form of interest and penalties even if you do establish a formal payment plan with the IRS.

However, the penalties are even stiffer if you don’t file and don’t establish a plan to pay what you owe. 

Also, the sooner you begin paying down your debt, the sooner your interest will start to decrease. Otherwise, your tax debt problem will just continue to grow at an increasingly fast pace.

Tax lien

A tax lien is a legal claim on your assets as security against payment of a debt. A tax lien can make your property subject to being forfeited to the IRS. In the meantime, it can severely restrict your ability to get new credit or sell your property.

Private collection activity

It may surprise you to know that the IRS contracts some of its delinquent taxes to private collection agencies. These collection agencies are used to track down people who have not been in contact with the IRS about their tax debt for at least a year.

While there are private collection agencies working on behalf of the IRS, be wary of scams involving people posing as IRS tax collectors. 

Here are three basic tips to help you guard against these scams:

• The IRS will notify you directly in writing before you are contacted by a private collection agency. 

• A list of the private collection agencies contracted by the IRS is available on the IRS web site. If someone contacts you, make sure their firm is on this list. If you are suspicious, contact the collection agency at the phone number on the IRS site and verify that the person contacting you is a legitimate representative.

• Always make any tax payments directly to the IRS and not to any third-party representative.

Possible criminal prosecution

Though most penalties for non-payment of taxes are financial, you may face criminal prosecution if the IRS believes you have deliberately tried to evade taxes.

Don’t Just Wait for Your Tax Debt Problem to Go Away

If you owe back taxes, the best course is to come to terms with the problem as quickly as possible. 

If you don’t, the interest and penalties on your back taxes continue to grow and increase your balance. Meanwhile, the noose will be tightening in the form of collection activities, claims on your income and assets, and possibly even criminal prosecution.

Also, don’t assume that the problem will just go away in time. The statute of limitations for non-payment of taxes is a long ten years. 

In fact, you may not even be off the hook after ten years. The statute of limitations period starts when you file your taxes, so if you’re late filing you’ll be liable for payment longer. 

Also, the statute of limitations doesn’t help if you have fraudulently tried to evade taxation.

So, a formal tax relief program is the best course if you have tax debt. Take the first step by figuring out what tax debt relief program is best for you, and filing an application for that program with the IRS.