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Tax Debt

Tax debt can significantly affect your financial and personal well-being. Ignoring your tax debt will only make matters worse. Your tax debt will not go away on its own. Not picking up your certified mail from the IRS will not relieve you of the tax liability. In fact, valuable legal options are probably expiring because you have not taken action to control your financial future.

Tax debt options

If you are in the unhappy situation of simply not having the money to pay back federal income taxes that you owe, you have three courses of action:

  • You can get an installment agreement, in which you will pay the full tax liability, but over an agreed-upon period of time.
  • You can file for an offer in compromise, in which you pay less than the full amount you owe, based on a negotiated agreement with the IRS.
  • Your choice will depend on your financial situation, how much you owe, and how much time remains on the statute of limitations for your tax liability. Generally, the IRS has 10 years from the date of the assessment to collect the tax.

Economic hardship

If you are really in a hardship place where your income is less than your expenses, you can get the IRS to back off for a year or two by getting your liability declared currently non-collectible. Just remember that the IRS will resume its collection efforts after the agreed upon time has past.

What about pennies on the dollar?

It is possible to negotiate pennies on the dollar. But, such situations are few and far between. To make this determination, the IRS looks at your income and assets to determine your “reasonable collection potential.” You must provide detailed information about your financial situation on IRS Form 433-A, Collection Information Statement. This includes verifiable information about your cash, investments, available credit, assets, income, and debt. In addition to property, the RCP also includes your anticipated future income, less amounts allowed for basic living expenses. Also, any information you provide the IRS may be used for future collection efforts. This is why it makes sense to hire a tax attorney that can explore all your legal options.