Despite their fearsome reputation and incredible power, the IRS does not want to destroy you. The IRS wants to get you into tax compliance, meaning that you have filed tax returns for the past six years. If you are not current in your filings, the IRS will refuse to negotiate any settlement or payment plan.
Therefore, step one is to get you into tax compliance regardless of your ability to pay your balance due in full.
There are several options available for delinquent taxpayers. Let’s take a look at the most common one’s:
- Installment plan. An Installment Plan is a payment agreement with the IRS. There are several types of arrangements: regular, partial payment, and streamlined. Which one of these options is best depends on your current financial situation and the amount you owe.
- Offer in Compromise (OIC). An offer in compromise is where the IRS will agree to accept less than the total amount you owe. Why would they do this? Because the IRS understands that if you can’t possibly pay the total amount of what you owe, they may accept a lesser amount as long as it falls within their guidelines. This will allow you to have a fresh start since one of the rules is to stay in tax compliance for the next several years. By accepting your OIC offer, the IRS will succeed in getting you back into tax compliance for both the past, the present, and the future. A true “win-win” for both you and them! Remember that the IRS is under no obligation to accept just any OIC. There is a strict protocol that you must follow in crafting your offer. That is where the services of an experienced tax professional are crucial.
- Currently “Not Collectible” status. This status buys time by allowing you to delay paying your debt. The debt is still there, but at least you will be able to function as a normal human being since the IRS will temporarily halt all collection efforts like seizing your bank account and garnishing your paycheck. Once your financial situation improves, the IRS will re-evaluate your status.
- Bankruptcy. A common misconception is that “there is no way you can bankrupt your way out of taxes.” While this is true in most tax situations, bankruptcy might be an option for some taxpayers. However, the key here is the two words “might be.” Bankruptcy is a highly complex scenario that usually requires several professionals – an accountant, an attorney specializing in bankruptcy issues, and a tax resolution specialist.
