Tax debt resolution does not necessarily always involve the word ‘payment’ because in some cases, paying off the debt is not the only way to reach a resolution. Taxpayers who do not have the financial ability to pay back their tax debt entirely or partially can still resolve their back taxes and get back into compliance.
Paying Reduced Tax Debt: Offer in Compromise
One of the most misunderstood tax debt resolution plans is an Offer in Compromise. Under this IRS program, taxpayers can have their tax debt reduced substantially. Many tax resolution services do not inform taxpayers about the full rules of the plan, which involves the scrutiny of the finances of the taxpayer applying.
Taxpayers should avoid tax services that market an Offer in Compromise as a one shoe fits all solution. Any tax debt payment plan should be fully researched before taxpayers submit an application. The IRS requires documentary proof of claims made by taxpayers. Therefore, it is best for taxpayers to choose a tax help that makes realistic promises. An Offer in Compromise is only available to those taxpayers who meet the program’s extremely strict requirements.
Tax Debt Resolution with Paying: Currently Not Collectible
The IRS aims to collect as much as it can from a taxpayer. If a taxpayer can pay a reduced amount and the IRS determines that the inability to collect any more, it will accept the maximum amount a taxpayer can pay without forcing the taxpayer into a financial crisis.
In cases where a taxpayer cannot pay any amount of tax debt because that will push the taxpayer into a financial crisis, the IRS postpones payment of tax debt and stops all collection activities for the decided period of time.
Tax Debt Relief: Innocent Spouse
A spouse can claim ignorance of the non-payment or understatement of taxes and apply for relief from the tax debt. Only those who are married and filing jointly can claim this relief. Along with relief from the entire tax debt amount, the innocent spouse also gets relief from any penalties and interest on the tax debt amount and any collection actions the IRS pursues.
The innocent spouse can claim to have unknowingly, in ignorance, signed the tax return without knowing the particulars stated in the return(s) to receive this relief. Divorced or separated couples, if they had filed joint returns when married that led to the tax debt, can also claim this tax relief.