Tax debt is a burden that increases with time. This is because the IRS charges monthly penalties and interest on the original amount of unpaid taxes. Therefore, early relief from tax debt provides advantages without even qualifying for tax debt reduction or reduction/elimination of penalties.
IRS payment plans are designed to allow comfortable payment of tax debt. Although the IRS encourages taxpayers to pay their full tax debt in one payment, taxpayers can explore payment plans to see if they provide more benefits to them.
Using Installment Agreements for Tax Debt Relief
Installment Agreements are for those taxpayers that can pay their full tax debt, but cannot or do not want to pay the full amount in a single payment. As its name suggests, under Installment Agreements, taxpayers can pay their tax debt in installments over a specified period of time. There are various kinds of Installment Agreements, categorized according to the amount of tax debt owed by the taxpayer and/or their ability to pay.
The Fresh Start Initiative
The IRS introduced the Fresh Start program to make it simpler for taxpayers to resolve their tax debt using an Installment Agreement. Under the Streamlined Installment agreement of the Fresh Start initiative, taxpayers that owe the IRS up to $50,000 can pay their back taxes through monthly direct debit payments for up to 72 months. The IRS will require some financial information, but they will not need a full financial statement.
Using Offer in Compromise for Tax Debt Relief
Taxpayers that can only pay a part of the tax debt can resolve their back taxes by applying for tax debt reduction. To qualify for an Offer in Compromise, taxpayers will need to share detailed financial information with the IRS, required to determine the ability to pay. If the IRS finds that the applicant is financially capable of paying the entire tax debt, the application will be rejected.
Offer in Compromise is designed to allow taxpayers that are in a financial difficulty to achieve resolution of their back taxes. Applying for tax debt reduction where the taxpayer can clearly pay the full tax debt amount can attract penalty from the IRS.
Apart from the payment plans, the IRS has other facilities to help taxpayers with different circumstances to achieve a fair resolution. Innocent Spouse is one such program where a spouse can claim that s/he did not know and had no reason to know about the tax debt. Only spouses that file their tax returns jointly can achieve resolution under innocent spouse. The innocent spouse allows the applicant full or partial relief from tax debt, and transfers the burden of payment to the liable spouse.