Four Ways to Get $10,000 or More of IRS Tax Debt Reduced
According to the IRS, more than 13.2 million Americans owe back taxes. The majority of these cases involve amounts that seem impossible to pay off. Often times, though, there are ways to get your IRS liability reduced but unfortunately most taxpayers are unaware of these methods. Below are four ways you can get your IRS debt of $10,000 or more settled for less than the full amount you owe.
Note, we always recommend getting in touch with a Specialized Tax Resolution Professional to negotiate with the IRS on your behalf. If you’d like to schedule a no-cost confidential tax relief consultation, give us a call at 201-604-2432.
First Time Penalty Abatement- You may qualify for administrative relief from penalties for failing to file a tax return, pay on time, and/or to deposit taxes when due under the IRS First Time Penalty Abatement policy if the following are true:
You didn’t previously have to file a return or you have no penalties for the three tax years prior to the tax year in which you received a penalty.
You filed all currently required returns or filed an extension of time to file.
You have paid, or arranged to pay, any tax due.
Offer In Compromise (OIC)- An OIC allows taxpayers to settle their IRS tax debt for less than the full amount of what they owe, sometimes for pennies on the dollar. To qualify, the taxpayer must prove to the IRS that they can’t pay the IRS back in full within the collections statute expiration date. This is called Doubt as to Collectability. When considering a taxpayer’s OIC, the IRS will look at the taxpayer’s income, expenses, liabilities and value of the taxpayer’s assets when determining if they can pay. Taxpayers must also be current with their tax filings, and cannot be in an open bankruptcy proceeding.
Partial Payment Installment Agreement- The Partial Payment Installment Agreement (PPIA) is similar to a regular installment agreement where you make monthly payments to the IRS for taxes owed. However, the big difference is you are only paying back part of the taxes you owe. To apply, you must submit a full financial disclosure (form 433-A). That includes details about your income, assets, debts, and expenses. Like an Offer in Compromise, the IRS takes into account your ability to pay.
Partial Payment Installment Agreements are harder to get than other types of Installment Agreements. However, they are easier to obtain than an Offer in Compromise. If the IRS has recently rejected an Offer in Compromise, you may want to apply for this instead.
Innocent Spouse Relief- Typically, taxpayers who file joint returns are both responsible for the entire tax, interest, and penalties associated with that return. Innocent spouse relief can provide one spouse with an exception to the general rule of joint liability.
There are three varieties of innocent spouse relief and each has its own specific requirements.
Traditional Innocent Spouse can get you relief from additional tax assessed against your joint return due to an erroneous item claimed by your spouse or former spouse.
Separation of Liability will only give your partial relief from additional tax assessed on your joint return. Rather than holding both spouses responsible for the full amount, the IRS agrees to allocate a portion of the debt to each spouse individually. You cannot claim this type of innocent spouse relief if you had actual knowledge of the erroneous item on the joint return.
Equitable Relief provides a catch-all variation of innocent spouse relief if the IRS believes it would be inequitable or unfair to hold one spouse accountable for the tax debt under all the facts and circumstances. You can only claim this type of relief if you are not eligible for either of the other two types of innocent spouse relief.
Don't let the burden of back taxes hang over your head any longer. Give us a call at 201-604-2432 and speak with a Tax Resolution Specialist today.
Jonathan Donenfeld, CPA is the Founder and President of JLD Tax & Accounting LLC, one of New Jersey’s leading Tax Resolution Firms. He is a member of the American Society of Tax Problem Solvers, New Jersey Society of Certified Public Accountants and the New York Society of CPA’s. He can be reached at jldonenfeld@jldtax.com or 201-604-2432.