Reduce Your IRS Tax Debt

With the Help of a Tax Attorney

Man writing a letter

Much of the tax debt in this country is not due to negligence or deliberate refusal to pay, but is instead the result of misunderstanding.  Like many Americans, you might be facing IRS tax debt and wondering how you will ever emerge from it. Here are some ways to reduce that debt.

  1. First of all, consider hiring a tax professional (CPA or tax lawyer) to help you assess your situation and determine the best course for reducing debt.  It may be difficult to figure out if you need professional help from tax attorneys, but if you are in desperate need of relief, it may not be a bad idea to seek out a professional.  Visit our article about how to get an IRS tax lawyer.
  2. Offer in Compromise.  The IRS employs elaborate methods for calculating the amount of tax they can expect to extract from an individual before the statutory period expires.  Every action they take against an individual bears a cost to them as well.  If, with the help of a professional, you can propose a debt payment that is less than the total amount owed but greater than the amount they can expect to gain, you can successfully reduce your obligation to a more agreeable level.  Such a proposal is called an Offer in Compromise.  Seek the help of a professional when you attempt this technique; it is definitely a challenge to convince the IRS to accept an Offer in Compromise, but still a great tool in your efforts.  If your Offer in Compromise fails, try to establish an installment agreement.
  3. Installment agreement.  This is an agreement established between the IRS and, ideally, your tax professional.  Essentially, you agree to pay your total debt (including interest and penalties) by paying a smaller amount each month.  Following this plan, you gradually erase the debt.  You really should have either a tax lawyer or a CPA representing you if your goal is to convince the IRS to accept a monthly payment that is lower than what you can technically afford.  But if you owe less than $10,000, you can determine the size of the monthly payment and the IRS cannot argue as long as this monthly rate allows you to pay your tax debt fully within a three year period.  You can't wash away those penalties and interest, but paying them in installments will offer some relief.
  4. Partial payment installment agreement.  This option is related to the regular installment agreement, but in this case you agree to set monthly payments whose sum is still less than the total amount of your debt.  This will naturally require you to convince the IRS to forgive the remainder of the debt, which is why it's even more important to have a lawyer who specializes in these cases in your corner.  The experienced lawyer will be better equipped to assess your tax debt and make a successful proposal.
  5. Remove interest and penalties.  If you can demonstrate that you cannot pay the full amount due to circumstances you are powerless to affect, then you can convince the IRS to eliminate the interest and penalties that have accrued.  As with other methods, it is best to enlist the help of a professional.
  6. Currently Not Collectible status.  This is not as much a way to reduce the amount owed as it is a method for delaying payment.  If you can convince the IRS that you have no way of paying your debt at this time, they will consider you "currently not collectible."  As long as you enjoy that status with them, you will not be expected to pay any of your debt.  Yet your statutory period does not freeze; it continues to decrease as usual. 

Don't get discouraged!  With these tips, you can successfully reduce your debt.  Consult a tax lawyer or CPA as you decide which strategy to adopt. 

 

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Comments

Aug
17

Good post. One other less common way to reduce tax debt is through innocent spouse relief. Whenever a joint tax return is filed each spouse is liable for the taxes owed from that filing. Innocent spouse relief allows one spouse to pass on full liability to the other spouse or separate out punts owed. There are many specific requirements to qualify for this method set forth by the IRS, but taxe debt can be wiped clean for one spouse if they meet the requirements.

By Manuel Davis Jr