How to Settle Your IRS Tax Debt - Best Available Options

Failing to pay taxes is something that will come back to haunt you. The IRS will eventually recover the debt with interest, so the longer you put this off, the worse you’ll just make your situation. 

You can lose valuable assets and property, and possibly do prison time. 

Thankfully, the IRS is open to working with those who demonstrate they avoided taxes only because they lacked the financial resources to settle their debts. In other words, if you can prove your intentions weren’t to defraud the government, there are plenty of options to address your debt - even if you’re short on cash. 

Continue reading and learn how to settle your IRS tax debt through the most popular debt relief options the IRS sometimes offers. 

Installment Plans

If you look up the question “How to settle your IRS tax debt”, chances are you will see the option of installment plans. For those not wealthy enough to pay the debt as a lump sum, paying in monthly installments is the easiest way to resolve the issue, but it isn’t available to everyone.

To qualify for a tax-payment installment agreement, you need to meet strict criteria, such as:

• You have no state tax debts
• You’re up-to-date on your tax returns
• You have enough funds to make the monthly payments

Although it’s in the best interest of the IRS to recover money, they aren’t interested in setting up a payment agreement with someone likely to dodge the monthly payment. For instance, if you have over $50k of tax debt on your name, it’s a huge red flag and a potential indicator you’ll fail to respect the terms of the agreement - at least in the eyes of IRS agents. 

Offer In Compromise

An offer in compromise is a type of settlement agreement that allows taxpayers to pay a reduced amount of what they owe in back taxes. The challenge here is convincing the IRS you’re unable to pay your debt, which allows you to pay a reduced amount in short-term installments or a lump sum. 

To qualify for an offer in compromise, you must provide detailed information not only about your income but also about your assets, equity in investments, and spending habits. The IRS will examine your net worth and sources of credit, then compare your monthly expenses with your income, thus being able to determine how much you can pay in a month. 

If the IRS approves this agreement, you have two years to settle your debt in full. 

Innocent Spouse Relief

You may be separated from your spouse, but if you filed joint tax returns in the past, you will be held individually responsible for the debt. However, if one of the spouses hid tax liability from the other, you can qualify for a relief program for your tax liability. 

This applies to the circumstances where you’re able to demonstrate the other spouse took deductions they didn’t qualify for, made mistakes reporting the income, or failed to report it altogether. 

You have two years from the date the IRS notified you about the collections process to file for an innocent spouse relief. 

Currently Not Collectible

In case you currently aren’t able to pay off your tax debt but have valid reasons, you can convince the IRS to put your case on hold. Keep in mind that this is just temporary. You’ll still need to pay the debt in full but you’ll get some necessary breathing room.

More importantly, if your case is deemed currently not collectible, the IRS will pause any wage garnishment, tax levies, and liens on your property. 

Declaring Bankruptcy

Following Michael Scott’s lead and declaring bankruptcy may eliminate your tax debt. It all depends on the bankruptcy codes. So, you should consult a tax planning attorney to see if you qualify for bankruptcy.

This option is far from perfect, as it can have serious financial consequences and damage your credit rating permanently. Plus, there’s a possibility you’ll be required to liquidate your assets, so before resorting to bankruptcy, consult a tax professional. 

Use Credit Cards

If you’re unsure how to settle your IRS tax debt, we have a question for you:

Do you have credit cards?

If you do, you can use them to pay off a portion of your debt. For example, by bringing your debt to under $50k, you may qualify for an installment plan and avoid more serious consequences, making this a fine move. 

Racking up your credit debt may help you avoid IRS penalties, but be careful. Don’t resort to this technique if you’re unable to make monthly credit card or IRS payments. 

How The Law Offices Of Mary E. King Can Help

A tax attorney can show you how to settle your IRS tax debt and advise you on the most appropriate option. Disputes with the IRS are complicated and considering the interest, penalties, and risks, attempting to resolve tax issues on your own carries a lot of uncertainty. 

This is especially true if you owe more than $25k because there’s a high probability that the IRS considers you a “flight risk”. 

A qualified tax attorney can even help eliminate your debt by leveraging the statute of limitations. The IRS has 10 years (from the date they started the investigation) to collect the debt. When this period is over, they won’t have the legal grounds to claim any properties or assets. 

While certainly a risky technique (that is only recommended in select cases), an expert attorney can stall collection activities until the deadline, thereby assisting you avoid paying anything. 

This is why you should work closely with the Law Offices of Mary E. King. Over the last twenty years, we helped many taxpayers resolve their debts while also preserving as much of their resources. Through negotiations, smart strategies, and expert advice, you can rest assured that your financial future is in good hands.

Give us a ring at 941-906-7585 or fill out our contact form, and we’ll review your case free of charge. 

Note: 

The information in this blog post is for reference only and not legal advice. As such, you should not make legal decisions based on the information in this blog post. Moreover, there is no lawyer-client relationship resulting from this blog post, nor should any such relationship be implied. If you need legal counsel, please consult a lawyer licensed to practice in your jurisdiction.