How to Resolve Old Tax Debt

Posted on August 8, 2022

How to Resolve Old Tax Debt

An old tax debt can become a serious problem because of the threat of IRS collection actions and the difficulty in resolve older tax debt. As most of the time, old tax debt is difficult to pay in a lump sum due to the interest and penalties accrued over time. To ease the pain of taxpayers the IRS has introduced the Fresh Start Installment Agreement.

Tax Debt Resolution through Fresh Start Installment Agreement

An Installment Agreement allows for the payment of a tax debt in monthly installments. The monthly amount is fixed and can be adjusted according to the financial strength of the taxpayer applying.

Under a Fresh Start Installment Agreement, it is easier than before to qualify for the plan. The maximum dollar criteria for a Streamlined Installment Agreement was raised from the previous $25,000 to $50,000. This adjust will now allow the program to cover more taxpayers. The maximum term to pay the tax debt under this agreement has been increased to 72 months instead of the previous 60. Taxpayers are not required to submit a financial statement for review to apply.

Penalty Abatement for Reduction in Tax Debt

Taxpayers who do not qualify for a tax debt reduction payment plan may explore a Penalty Abatement to reduce their total back taxes. An old tax debt increases substantially over the years due to both penalties and interest charged by the IRS. Although interest cannot be reduced or avoided, taxpayers can get IRS penalties reduced or forgiven through a Penalty Abatement.

A tax resolution company helps taxpayers explore all tax debt reduction options, including a reduction or avoidance of penalties. The IRS reduces or forgives penalties on a tax debt if there is a “reasonable cause” for the non-compliance. A reasonable cause can be:

  • Death in the family
  • Critical illness
  • Bad financial advice
  • Damage due to natural disaster
  • Loss/damage to tax and financial records
  • Divorce that affected health and finances

The resolution of old tax debts should be completed as soon as possible to avoid IRS collection actions and additional penalties and interest. It is advisable to use the help of tax experts to achieve the best resolution.