One of the IRS’s best-kept secret is that you can be forgiven of tax debt you owe but cannot pay. There are four programs of tax debt forgiveness that millions of people have used. If you owe more than what you can afford, you have four different options that can get part or even all of your debt forgiven.
Option #1. Get the IRS to Delay Your Payments
Don’t make as much as you used to? Unemployed or underemployed? You can ask the IRS to put you in what they call “uncollectible status.”
Once you move into uncollectible status, the IRS stops all collection activity on your account. You won’t have to worry about garnished wages, levies, fines, or penalties.
To qualify you must prove you can’t afford to pay what you owe right now. To do so, you’ll need to file Form 433A for your personal taxes. You’ll file Form 433B for if you need the uncollectible status for your business.
Pros
– You’ll have more time to get back on your feet financially.
– All collection activity will stop.
Cons
– You’ll still owe the money. This tactic doesn’t cause your debt to go down – it just gives you more time to pay it.
Option #2 – Cents on the Dollar
The IRS calls this the “Offer in Compromise” program. It allows you to settle the amount you owe at a discount – and usually for pennies on the dollar.
You can contact professionals like TaxRise. Asking for help can be beneficial because they know the ins and outs of negotiating with the IRS and can guide you through the process.
With this program, you pay what you can afford to pay, and the IRS forgives the rest. For example, let’s say you owe $30,000, but you only have $6,000 available. To pay anymore would cause a severe hardship for you.
The IRS takes your $6,000 and releases you from the rest of the debt. In that case, you’d settle for 20 cents on the dollar.
The Three Ways You Can Use This Program
- An Offer Based Upon Doubt as to Under this program, you establish that paying the debt right now would be a major hardship. You don’t have the money to pay without putting yourself in serious financial difficulty.
- An Offer Based Upon Doubt as to Under this program, you challenge the fact that you owe what they say you owe. This works well for someone who experienced a questionable audit.
- The Effective Tax Administration Offer. This program is for people who have the money to make some payments now, but paying in the future would cause undue hardship.
Pros
– You can frequently pay off what you owe for pennies on the dollar.
– All collection activities will stop. No more collection calls, levies, or wage garnishments. You’ll feel like a weight has been lifted off your shoulders.
Cons
– Very difficult to do on your own. You’ll probably need professional help to get the biggest discount you qualify for.
– Not everyone qualifies for the program. You’ll need to prove full repayment of the debt would cause an unbearable hardship.
Option #3 – Wage-Earner’s Repayment Plan
Did you know debts you owe the IRS CAN go away in a bankruptcy? Many people mistakenly believe otherwise.
A Chapter 13 bankruptcy allows a taxpayer to enter into an agreement to pay back taxes in accordance with his ability to make monthly payments. When certain rules are met, whatever cannot be paid back within 60 months is usually discharged.
Because the IRS has revised its Offer in Compromise procedures, thousands of these bankruptcies have been avoided. However, knowing your right to a Chapter 13 discharge is mandatory. In many cases you must let the IRS know of your ability to discharge taxes in order for them to give serious consideration to your offer. You must be prepared to show the IRS that they will get more by accepting your offer than they will by forcing you into bankruptcy.
Pros
– You only pay what you can afford to pay each month.
– You only pay for 60 months. After 60 months, your debts get discharged and you owe nothing.
– You’ll almost certainly save on the total amount you wind up paying.
Cons
– This is hands-down the most complicated of the four options. You’ll probably need professional help with all the paperwork and forms.
– You still need to make payments each month. You can get thrown out of the program if you miss too many payments – and then you’re back to owing the full amount!
Option #4 – Fresh Start
This method lets you clear all your debt. You won’t owe any more money, and you get a fresh start.
This program requires filing a Chapter 7 Bankruptcy. This is the quickest way to eliminate your tax debt – including your back taxes. It lets you begin your financial life all over again.
To qualify you must be able to show that paying back even a small part of your debts would be nearly impossible.
Pros
– You get a fresh start financially. All your debt goes away.
– Fastest way to become debt free
Cons
– You’ll have a lower credit score for a little while. Getting a loan won’t be that tough – but you’ll pay higher interest rates for a few years.
– You’ll probably need professional help to file your bankruptcy. While a Chapter 7 isn’t as complicated as a Chapter 13 (not typically, anyway), most people will still need some guidance.
Your Best Option
Fortunately, there are a few different programs to help you with your tax debt. Perhaps the best option is Fresh Start program. It is the quickest and most effective way to get out of tax debt and most people struggling with their debt will qualify. If done properly, it can significantly reduce your tax debt, or even eliminate it, with minimal effect to your credit score. If you need help joining this program or to see if you qualify, visit taxrise.com.
