8 Smart Ways To Settle Your IRS Tax Debt
Most people know that there are few things is in this life as certain as death and taxes. However, each
year, millions of people are still surprised by the amount of taxes they owe. Despite the absolute
certainty of tax season, many of us can settle IRS tax debt for a fraction of what we owe if we meet
some basic criteria. Here are some ways you may be able to qualify for a dramatic reduction of the taxes
1. Qualify For An Innocent Spouse Program
If you are married and filing a joint tax return with a spouse, you should be aware of certain issues that
could arise. Even with a legal separation, spouses can still be held responsible for underpayment of
taxes or dishonesty when filling out a tax return. This is not to say that options do not exist to trump this
responsibility. If a former spouse has hidden a tax liability, responsibility to pay off that liability may not
exist. Additionally, if your partner shows that you failed to report taxable income, took improper
deductions, or otherwise dishonestly filed your taxes, your partner may be qualify to seek relief from
your shared tax liabilities.
To be eligible for this type of relief, a wronged spouse must demonstrate that they were legitimately
misled and had no knowledge of the improper tax filing. Moreover, that same spouse has a limited
amount of time (usually two years) from the date the IRS first tried to collect the unpaid taxes, to ask for
innocent spouse relief. Additional tax relief provision for couples are as follows:
Equitable tax relief is an option for spouses that do not qualify for innocent spouse relief. Under limited
circumstances, a spouse can use this option if they can prove that inaccuracies on a joint tax return were
the legitimate responsibility of the other spouse. This option can also be used when tax reported on a
joint return is correct but was not paid in a timely manner with the tax return.
Separation of liability also offers an exemption for legally separated or divorced partners. In certain
instances, partners who have not cohabitated for 12 months prior to filing taxes may be eligible for a
certain amount of tax relief. This will depend on the amount owed.
If you would like to see if you qualify for an innocent spouse program, it is important to do your
research, make sure you document your specific circumstances in writing, and seek out the assistance of
a trained and experienced professional.
2) Consider A Compromise
You may have seen television commercials implying that certain companies can help you pay off tax
debt for pennies on the dollar. These ads are often misleading. Yes, this is an option, but the IRS has a
special form that must be completed to take advantage of it. You will also be responsible for a filing fee
of nearly $200 and providing all documents as requested in a timely manner.
Many tax payers are not aware of this option, but a settlement in compromise in gaining popularity
with people who have fallen behind on their taxes. So what exactly does that mean to broker a
compromise with the IRS? Under certain circumstances, the IRS will allow you to pay a portion of what
you owe in back taxes with the remaining amount written off by the IRS.
In order to take advantage of this option, you must provide written evidence that paying what you
currently owe, is a hardship. Next, you will have to propose an offer to pay the reduced amount owing
in one lump sum or in installments. You should also be aware that the required form includes detailed
information regarding spending habits, income, assets, investments, and any equity you may have in
When evaluating your completed application, the IRS will look at your net worth and credit. Your income
and monthly expenses will then be balanced to calculate what payments you can afford each month.
You can’t apply for a compromise if you have an open bankruptcy filing. And finally, taxpayers that
qualify for a settlement in compromise, have two years to settle any taxes owing per the terms of their
agreement with the IRS.
3. Check The Statute Of Limitations
Are you worried about your ability to pay taxes owing from previous years? If so, you should know about
something called a statute of limitations. This principle exists when it comes to the payment of taxes and
dictates that the IRS is limited to 10 years to collect taxes, interest, and penalties after the date of
assessment. If your taxes happen to become due before that ten year limited period, you may still be
able to resolve your tax case without paying a dime.
If the ten year deadline is close, a tax relief firm or attorney can assist with filing paperwork to pause tax
levies, liens or seizures before statute of limitation deadlines. This will allow you to wait it out until the
statute period passes and the IRS can no longer move to collect your past due taxes, This can be a risky
strategy though. If it is determined that you do not qualify, unpaid interest and penalties increase and
you could be liable for a massively increased payment to the IRS.
4. Try An Installment Plan
Not many of us have the immediate funds to write out a check to the federal government when we owe
a large amount of income tax. One option is to pay with an installment plan. This payment method is
comparable to a home mortgage. However, as opposed to handing money over to a mortgage lender
each month, the IRS gets paid instead.
In order to take advantage of an installment plan with the IRS, tax payers must:
•Be current on filing all taxes.
•Have state income taxes mostly paid off.
•Make agreed upon monthly minimum payments.
Although the IRS makes every effort to compromise when collecting the money you owe, truant
taxpayers who are unable to make timely monthly payments, will be disqualified from making
Additionally, IRS representatives will not consider you for installments if you are more than $50,000
behind on your taxes. If installment payments sound like a good option for you, try consulting an
attorney or a specialist who can help you effectively review your options and negotiate an affordable
5. Be Sure Your Taxes Are Collectible
Another option for taxpayers who cannot afford to pay their taxes, is a temporary hold on the amount
you owe. If you qualify, the IRS will label your taxes as “not collectable” and payment will be temporary
paused. This option only lasts for as long as you are unable to pay, but it does stop tax levies, wage
garnishments, and liens on your property for a limited period of time.
6. Hire A Professional Tax Relief Company
One of the more popular options used by truant tax payers with the funds to afford it, is to hire an
attorney or professional firm to resolve your IRS issues. If the amount you owe is high and the issues
surrounding your return are complex, this might be the best option for your unique situation.
Experts suggest that tax debt of less than $10,000, should be resolved between the IRS and the taxpayer
directly. If your debt is greater than $10,000, and your issues are complex, a lawyer or tax professional
might be a better option for an expeditious resolution.
7. Alternative Options
Although experts do not recommend this option for everyone, some consider it smart to pay down tax
debt with a credit card. This will depend on the amount you owe, your individual interest rates, and if
your cards offer rebates or cash back options.
If this is an option you are considering, you should be aware that adding credit card debt that can’t be
paid off in a month is usually a bad idea unless it allows you to avoid significant IRS penalties. Before you
implement this plan, be sure to make a realistic budget for yourself so that you can afford to make the
payments for the new debt you are incurring.
One last option that some tax payers resort to is Bankruptcy. Although this option can eliminate tax
debt, there are limitations. Not all tax payers qualify for a discharge of past due tax debt. Bankruptcy can
also have some severe financial consequences that knock your credit rating for a loop and make it
challenging to borrow money for years after. You may also be forced to liquidate assets to pay off the
amount you owe to your creditors.
If you are a member of that unfortunate group of taxpayers that cannot afford to pay the amount
owing, there is hope. Burying your head in the sand is not a good option since the IRS will almost always
collect the amount you owe with penalties and interest. Take action and speak to an experienced
professional for practical advice as soon as you can.
This year’s tax season may have brought you an ugly surprise that you are not prepared for. Regardless
of the amount of money you owe or how prepared you are to pay that amount, be sure to carefully
consider your options. You have more available options than to simply write a check that empties out
your bank account and leaves you with serious financial concerns. First and foremost, consider
consulting a professional tax relief firm today. Your options may be much more favorable than you
thought they would be.