As a taxpayer, it is only natural to worry that a financial crisis will leave you or your family completely powerless and at the mercy of the IRS. If you find yourself in the understandably concerning situation where you are having difficulty paying your taxes, the IRS has several options designed to help you out and provide tax debt relief.
Paying in Installments
People often struggle to pay their tax bills simply because they are unable to pay what they owe in one lump sum. The IRS understands that lump sum tax liabilities can be difficult to meet for people, and they typically are willing to negotiate an installment plan. You can pay your tax bill including penalties and accrued interest in either a short-term plan of 120 days or fewer (if you owe a combined $100,000 or less) or a long-term plan of over 120 days (if you owe $50,000 or less in combined tax, penalties, and interest).
Currently Not Collectible Status
At the discretion of the IRS and based on your living expenses, the service may decide you cannot currently afford to pay your taxes and meet your reasonable living expenses. Taking into account all your income and standard national and local living expenses, the IRS may assign you as Currently Not Collectible (CNC) and halt their tax collection process. The IRS reevaluates your situation periodically to see if you are in a better position to pay off the tax debt you owe.
Innocent Spouse Relief
For individual income or self-employment taxes, you can apply for innocent spouse relief, which relieves you of the responsibility to pay tax returns that were incorrectly filed by your spouse or former spouse, whether due to improperly reporting or omitting items from the return. You must have submitted a joint return to qualify, and you must also establish that you didn’t know there was an understatement of tax.
Penalties for late payments to the IRS are tough to take and can increase your tax debt substantially. Relief from penalties is available under the First Time Penalty Abatement policy. To qualify for relief from paying penalties, you need to have had three consecutive years without a penalty prior to the tax year in which you receive a penalty. Other criteria to qualify for penalty abatement include filing all currently required tax returns and paying or arranging to pay any tax bills due.
Statute of Limitations
The IRS has a 10-year statute of limitations period for collecting tax returns after it makes an assessment of a taxpayer. An assessment is defined as when an IRS officer signs a certificate of assessment, which states a taxpayer’s tax debt.
Offer in Compromise
You can make an offer in compromise (OIC) to the IRS, which lets you settle your balance for less than the full amount owed. You must have filed all your tax returns to be eligible for an OIC, and you need to make all required estimated tax payments for the current year. Find out more about the IRS tax debt relief programs and compromises available to you.
If you are in tax debt and it is putting financial pressure on you or your family, make sure to investigate these IRS debt relief options fully and use them to your advantage if possible.