Tax debt relief programs

Tax debt relief is a way that the government helps taxpayers that cannot afford to pay their tax debt. 

Tax debt relief is an option when you owe the IRS money and can't afford to make the payment. This Tax debt relief programs comes in the form of a payment plan or a settlement in which the Internal Revenue Service (IRS) agrees to settle your tax debt for less than the amount that is owed.

Who might need tax-debt relief?

1. Taxpayers who defaulted in there payment and lack the resources to pay their debt through personal loan, home equity loan, credit card, investments, etc.

2. Taxpayers in arrears who have come to the attention of private debt collectors hired by the Internal Revenue Service (IRS)

3. Those who have failed to file tax returns for a number of years, but who have managed to operate under the radar of the IRS.

4. Taxpayers, whose debt is so “seriously delinquent” ($50,000 or more) and the IRS have directed the State Department to deny, revoke or confiscate their passports.

IRS Relief Options

As stated earlier, the IRS offers a handful of options for delinquent taxpayers: payment plans, offers in compromise, installment agreements.

Installment agreements works like any other loan: The individual pays a certain amount each month over a period of time (up to six years) until his or her tax debt is paid off completely. Using an installment agreement ends the accumulation of penalties, but, like any loan, it does carry interest. There also will be processing fees.

If you owe less than $50,000 in combined taxes, interest and penalties, it’s possible to apply for an installment agreement.

Taxpayers who can prove that paying the full amount due, now or over time would be ruinous may qualify for an offer in compromise (OIC): that is, an agreement to settle their tax debt for less than the amount owed. The IRS weighs a host of factors, among them ability to pay, income, expenses, and asset equity. 

The agency generally approves an offer in compromise only when the amount offered represents the most it can expect to collect in a reasonable period of time.

Applications must be accompanied by a payment of 20% of the total offer amount, plus a nonrefundable $186 fee.

If accepted, offers in compromise can be paid two ways: in a lump sum, or periodically. However, because the IRS rarely accepts them, an OIC shouldn’t be your go-to option.