If you need IRS tax debt relief, you may not have to hire a fancy pants CPA or tax attorney. Depending on the situation, you have a few alternatives you can try yourself. If you are successful, you may end up saving a pile of money and your credit score too.
Neal’s Notes: If you know that you’ll owe tax money when you file your return but don’t have the money to pay, consider setting up an installment plan. You have to do this before you file but if you do, you’ll save yourself the penalties – and the agony of dealing with a hostile tax bureaucrat my friend. Do it.
Offer in Compromise
This can be the best solution for getting out of debt to “the man.” In this scenario, you convince the IRS that you can’t repay the large amount they want you to pay – but you are able to repay a smaller amount. You promise to pay this amount according to the terms you work out with the IRS, and you also guarantee that you’ll pay your taxes for the next five years.
The downside is it may be tough to get the IRS to go for this agreement. The only way the government is going to do it is when they think it’s in their interest to do so. (News Flash – they don’t care what’s in your best interest.)
They might consider it when:
1. You argue you don’t owe what they say you do. They think you might have a winnable case and as a result, they compromise rather than face you in court. (Sometimes, you won’t be held responsible for your spouse’s IRS debt. Read “Innocent Spouse.”)
2. You convince them that they’ll never be able to collect the amount they want. They understand that the best chance they have of seeing anything is to keep you afloat. As a result they agree to the reduction. It might not be a bad idea to bring along proof that you’ve gotten your budget under control too.
If you go this route, the IRS is going to look at your reasonable collection potential (RCP). This is simply the value of your personal assets plus your future income. They will base their decision about your offer in compromise based on your RCP.
Tax Penalty Abatement
If the boys and girls in D.C. think you shortchanged them, they’ll ding you with a penalty. This can be especially frustrating because late fees are added to the penalty.
If you can prove that the penalties were levied by mistake, you can communicate with the IRS office and usually get this little misunderstanding cleared up. When this happens, submit a request for “penalty abatement.”
You can make this request if you think the IRS is mistaken. And you can also make this request if some very unusual circumstance resulted in your late payment. >You might go for this if there was a death or serious illness in the family, a long period of unemployment or even some natural disaster.
Wage Garnishment Release
If you don’t pay your taxes, the IRS can go after you by garnishing your wages. This could really wreck havoc with your budget. They can slice off up to 25% of your disposable income from each and every paycheck. Ouch!
What you’re looking for here is a “wage levy release.”
The IRS might agree to this if you can convince them they’ll get their money another way. Possible alternatives include loans, installment agreements and extensions.
IRS Payment Plans
If you owe Uncle Sam tax bucks, an IRS Payment Plan might be the very best way to go. You might even be able to work at a debt payment plan that is interest-free. I did some research on this option, and it was very difficult to find out very much. There are filing and asset requirements. (You must have filed all your past tax returns and you can’t have assets that could be used to pay your debts.)
The kind folks at the IRS will look at your income and your expenses. They’ll then determine what your payments should be. This might be a case where you bring in a tax specialist.
Short-Term Payment Extensions
If you only need a short-term loan, you can get an extension for 10 to 120 days. But you’ll be charged interest and late fees during that time. You’ll have to pay the entire debt off over that period…or else. If you go this route, consider contacting Lending Club (for more information, see my Lending Club review). You might be able to arrange a significantly less expensive loan through this firm.
You may be eligible for an installment plan.
To do this, get the IRS Installment Agreement Request Form 9465. You can even do it online if you owe less than $25,000.
The IRS can give you up to five years to pay your debt. Usually, the payments are set up as withholdings from your pay.
There is a cost to setting up these agreements. First, there is the interest, which is the Federal Short-Term Rate plus three percent. Then there are the penalties. This is ½ percent per month. These guys make Don Corleone look like the tooth fairy.
If all else fails, get a loan to pay your friends at the IRS. The rate is almost certainly going to be lower than those offered by the government. There are many low-cost alternatives to borrowing money that can help you get out from under the IRS’s claws. Of course, you don’t want your credit report to look like “ka ka,” so take care of the IRS ASAP.
Final words. Don’t mess around when it comes to “Big Brother.” And if you need help, call a professional.