Options to Handle Your IRS Debt if You Cannot Pay It in Full

Episode 46:  In this episode, Timalyn discusses 4 various options you have to handle your IRS debt, if you cannot pay it in full.  While you need to pay your tax debt, there are ways to do it so that you’re not overly burdened.  In addition to the lump sum payment, she’ll explain the offer in compromise, installment agreements, currently not collectible status, and bankruptcy. 

Have You Received an IRS CP504 Notice?

If this is a letter you’ve already received, then you know the IRS is notifying you of their intent to levy.  The reality is you’re now in a tough situation.  While you haven’t been able to pay your tax debt, you most likely haven’t communicated with the IRS about your particular situation.  Now, the IRS is going to have the right to access your bank account(s) and decide how much they are going to take. 

The Offer in Compromise

You’ve probably heard about commercials claiming you can settle your tax debt for pennies on the dollar.  In reality, many people won’t qualify for this option.  This is sometimes referred to as the Fresh Start Program, which was implemented by Congress.  However, the Fresh Start Program isn’t just about the Offer in Compromise.   

There are ways to qualify for the Offer in Compromise.  You may be able to claim the debt doesn’t actually belong to you.  This is “Doubt as to Liability.”  Unfortunately, this may be very difficult to prove.  “Debt as to Collectability” means the IRS probably won’t be able to collect the debt from you.  “Effective Tax Administration” is another claim you may be able to use to qualify.

The IRS has a pre-qualifier tool on its website, so you can see if you might be able to qualify for the Offer in Compromise resolution.  In Episodes 39 and 40, Timalyn discussed IRS Form 433-F.  By completing this form, you’ll have a good idea of whether you’d qualify for the Offer in Compromise option.  The form will help to prove your ability to pay or lack thereof. It also takes into consideration your health, age and education.  These are factors the IRS will use to determine if you qualify. 

Any offer you make will have to include a certain percentage of the equity you have in specific assets.  If you have a lot of equity in your home or other assets (including your retirement portfolio), the IRS could require you to sell one or more of the assets to create funds available to pay your tax debt.  So, if that’s your situation, the Offer in Compromise might not be the preferred option for you. 

It’s important for you to consider working with a qualified professional who will help you to best represent your situation to the IRS. 

Installment Agreements

Timalyn discussed this option in Episode 10.  These are generally various payment plans you can have with the IRS.  There are 3 popular options:  Streamlined, Regular and Partial Pay.  Timalyn prefers the Partial Pay Installment Agreement because it looks at your assets, but focuses on your income and your expenses.  Assuming you can’t pay off your tax debt before the Collection Status Expiration Date (CSED), the IRS will still want as much as they can get from you. 

Establishing an installment agreement may be a good option, based on your specific situation. 

Currently Not Collectable Status

Timalyn explains that this option temporarily puts your tax account on hold.  You’ll still complete the IRS Form 433 to prove that you really have nothing left after calculating your income and deducting the allowable expenses. 

The IRS cannot put you in a financial hardship to pay your taxes.  There may be a difference in what you consider a necessary expense and what the IRS considers.  These would include your rent/mortgage and monthly car payment. 

Now, this does not mean you never have to pay the tax debt.  Interest will continue to accrue during the period of not collectable status.  But as Timalyn discussed, the IRS only has the option of collecting the debt before the CSED.  The IRS will not levy you during the Currently Not Collectable (CNC) period. 

Once the period has passed, the IRS can require you to submit documentation to see if you should still qualify.  If this sounds like a good option for you, listen to Episode 18, where Timalyn explains how to temporarily put your tax account on hold.

Bankruptcy

Now, admittedly, this won’t be the right choice for everyone.  However, if you qualify, you can use this to eliminate certain types of debt.  Timalyn cannot provide legal advice about bankruptcy, because she is not an attorney.  She does have relationships with bankruptcy attorney to whom she can refer you, if you need this option.

There is a 3-year, 2-year and 240-day rule, you need to understand. You can’t have any fraud claims, no taxes related to a trust and no Substitute for Return (SFR) on your account.  The tax debt you’re trying to discharge must be at least 3 years old.  It must have been filed with the IRS for at least 2 years.  Additionally, no other tax assessments can have been made by the IRS during the past 240 days. 

Assuming you meet the above qualifications, that tax year is eligible for bankruptcy.  However, if there is a tax lien, even if you bankrupt the tax debt, you’ll still have to repay the amount covered by the lien. 

Again, this may not be the best option, but depending upon your situation, it may be the option you can use. 

Final Words of Advice

As Timalyn has advised in previous episodes, it’s important to remember to breathe.  She invites you to contact her to see if she would be able to represent you.  The majority of her clients come owing 6-figures or more to the IRS, they may be facing an audit or even worse, they are actively being levied by the IRS.  Don’t wait for that to happen to you. 

Please consider sharing this episode with your friends and family.  There are many people dealing with tax issues, and you may not know about it.  This information might be helpful to someone who really needs it.  After all, back taxes shouldn’t ruin their life either.

As we conclude Episode 46, we encourage you to connect with Timalyn on social media. You’ll be able to subscribe to this podcast on Spotify, Apple Podcasts, Google Podcasts, and many other podcast platforms.   

Remember, Timalyn Bowens is America’s Favorite EA and she’s here to fill the tax literacy gap, one taxpayer at a time.  Thanks for listening to today’s episode.

For more information about tax relief options, visit https://www.Bowenstaxsolutions.com/ .

If you have any feedback, or suggestions for an upcoming episode topic, please submit them here:  https://www.americasfavoriteea.com/contact.

  

Disclaimer:  This podcast is for informational and educational purposes only.  It provides a framework and possible solutions for solving your tax problems, but it is not legally binding.  Please consult your tax professional regarding your specific tax situation.