Tax day is a source of anxiety and trepidation for millions of Americans every year. We collectively hold our breaths as we submit our taxes, keeping our fingers crossed that we didn’t miss any deductions and that our refund will be substantial. For many however, there is more to worry about on tax day. For those who are unable to pay their taxes, there is a whole different set of fears. Filing for less that what you really owe can result in debt far beyond the amount owed, and neglecting to file returns at all can result in even further penalties for failure to file.
It is recommended that those between $10,000 and $25,000 in back taxes hire tax professionals, because the stakes are high. Those facing Irs tax debts are subject to tax levies including wage garnishment, a levy that occurs when an employer is required to withhold the earnings of a debtor and forward them to the IRS to make up for back taxes owed. Though these possibilities are quite frightening, there is hope. The IRS is legally required to notify debtors and to give them an opportunity to make payment arrangements. At this time, you are legally allowed to file for IRS abatement. If the Internal Revenue Service sends you a corrections notice that is in error, you have sixty days to notify send an IRS abatement letter, stating that you disagree with the notice and request that they abate the assessment. If the IRS abatement letter is successful, you will be discharged of the debt about which you were contacted.
Should the IRS abatement letter prove unsuccessful, however, there are still options.
1. Debtors can seek to set up an installment agreement, under which they develop a monthly payment plan.
2. Debtors can set up a partial payment installment agreement allowing them to develop a long term payment plan to repay debts at a reduced amount.
3. The IRS can agree to the “not currently collectible” program under which the IRS agrees to wait for a year to collect on tax debt.
4. The debtor can file for bankruptcy, thereby discharging all debts
5. The debtor can file for offer in compromise, a program allowing debtors to settle debts for less than what they owe after making an initial payment.
Though the first four options are fairly self explanatory the IRS offer in compromise method to stop garnishment of wages or other tax levies requires some further explanation. In order to qualify for an offer in compromise settlement, one of three conditions must exist. There must be either doubt as to liability, doubt as to collectibility, or effective tax administration. To qualify under doubt as to liability, there must be some doubt that the debtor really owes some part of the tax debt. Under doubt as to collectibility, you must prove that you are unable to pay your tax debt in full. If neither of those conditions exist, some may qualify under effective tax administration. This might apply to those who are unable to work because of a disability and for whom it would cause undue hardship to sell their assets.
Though those finding themselves in tax debt often feel hopeless, there are options. Meeting with a tax professional can help those owing substantial amounts to find the choice that is right for them. To see more, read this.