Do you owe money to the IRS? If so, you might want to know that there are several legit ways to settle your IRS tax debt for less money than you owe.
The IRS realizes that you might not be in a position where you can (or want to) pay all of the money you owe in taxes.
You have the choice to represent yourself as you bargain with the IRS to reduce your amount owed. Or you can partner with tax resolution companies like Community Tax.
Tax resolution companies employ expert CPAs and attorneys to help you reduce the amount you owe to the IRS. They can help you use one or more of several creative ways to reduce your tax burden.
Here are some legit ways you can settle your IRS tax debt for less.
Table of Contents
- Settle Your IRS Tax Debt and Pay Less
- 1. Partial Payment Installment Agreement
- 2. Lump Sum Reduced Payment (Offer in Compromise)
- 3. Innocent Spouse Tax Relief
- 4. Statute of Limitation Laws
- 5. Debt Management or Settlement Program (if you’ve already paid your tax debt using your credit cards)
- 6. File to Receive a Currently Not Collectible Status
- 7. Fresh Start Initiative Program
Settle Your IRS Tax Debt and Pay Less
IRS debt happens. Everyone experiences unexpected events in life that can lead to big tax bills. Perhaps you underestimated your withholding amount. Or maybe your gig economy job brought you more income than you expected.
Whatever the case, there are legit ways to settle your IRS tax debt for less. Read on to find out options that may help you.
1. Partial Payment Installment Agreement
One newer IRS program allows you to pay your tax debt in low monthly installments. The Partial Payment Installment Agreement (PPIA) lets you pay your IRS tax debt in monthly installments for a specified amount of time.
Once you’ve paid the installment payments as agreed, your debt is forgiven, even if you haven’t paid the entire balance owed. The IRS gears this program toward people who owe at least $10,000 to the IRS, including interest and penalties.
Download Our Free Starter Budget form
Sign up for our newsletter to get this budget form now!
As with all government programs, you need to meet additional conditions with this type of program. A qualified tax debt attorney from a trusted firm like Community Tax can help you wade through the red tape.
If you qualify, your application and approval may go faster with an experienced tax debt attorney on your side. Not to mention you won’t have to become a self-educated expert in tax laws.
2. Lump Sum Reduced Payment (Offer in Compromise)
The Offer in Compromise is another IRS program that can help you reduce your tax debt. This program allows you to make a lump sum payment on your IRS tax debt. The lump sum payment amount is lower than what you actually owe.
This means you settle your debt for less with the stipulation that the IRS gets the agreed upon money all at once. Sometimes you can get an Offer in Compromise with a short installment plan as well.
As with the PPIA, to qualify for the Offer in Compromise program, you need to meet specific conditions.
Some of those conditions include:
- A doubt that the full amount can be collected
- Exceptional circumstances that would make collecting full payment unfair to you
- Some doubt that you owe what the IRS says you owe
A qualified tax debt attorney can explain how to qualify in specific detail. However, if you are eligible for this program, you could cut your tax bill substantially.
3. Innocent Spouse Tax Relief
Did you know that you may be able to get off the hook for a tax bill if you can be deemed an innocent spouse? If you file joint tax returns with your spouse and end up with a huge tax bill, you may be eligible for this program.
There are three types of assistance that can fall under this category:
- Innocent Spouse Relief
- Separation of Liability Relief
- Equitable Relief
Innocent Spouse Relief
Innocent Spouse Relief offers you tax burden relief if your spouse failed to report income. It also applies if your spouse reported income improperly or claimed improper deductions or credits.
Separation of Liability Relief
Separation of Liability Relief allows you to separate the tax bill you’re responsible for from what your spouse is responsible for. This program is applicable when an item wasn’t properly reported on a joint return.
The Separation of Liability Relief program applies if you’re legally separated or divorced from your spouse. This program helps ensure that your ex (or soon-to-be-ex) spouse’s tax burdens remain his or her own.
The Equitable Relief program can apply when you don’t qualify for the other two programs. Again, an improper reporting incident needs to exist. Also, you should generally be able to attribute that incident to your spouse or ex-spouse.
These types of program help protect you from underhanded tax dealings on the part of your spouse or ex-spouse.
Because there are so many intricate details to these types of programs, you should consider consulting a tax debt attorney.
4. Statute of Limitation Laws
There is a chance you may be able to reduce or eliminate your IRS tax debt due to statute of limitation laws. The law says the IRS has ten years from the date of assessment to collect your IRS tax debt.
If it’s been more than ten years since you’ve been assessed, you may qualify to be relieved of the debt partially or entirely. Even if it hasn’t been ten years, you may be able to use statute of limitation laws to your advantage.
A qualified tax debt expert can help you strategize to use statute of limitation laws to your advantage. Have you already started making the installment payments on your tax debt?
If you qualify under statute of limitation laws, you may be able to cease making your monthly payments. Check with a tax expert to see if statute of limitation laws can help you.
5. Debt Management or Settlement Program (if you’ve already paid your tax debt using your credit cards)
What if you’ve already paid your tax debt using credit cards? If those credit card payments are getting to be too much to bear, you may have an option to reduce the debt.
Debt management plans and debt settlement plans can help you to pay less on your debt as you pay it off. Here are summaries of how the two plans work.
Debt Management Plans
Debt Management Plans are plans created by a debt management company that can help you pay off debt faster. With debt management plans, you work with a reputable debt management company.
They work out a plan where you can pay off your consumer debt in a specified period. That amount of time is typically seven years or less. The goal is to do this within a payment structure you can comfortably handle.
Debt management companies also work with your creditors to secure lower interest rates. In this way, you will pay less than what you would have typically been required to pay.
Debt Settlement Plans
Debt settlement plans work a bit differently than debt management plans. With debt settlement plans, the debt management company you chose negotiates a reduced balance owed with each of your creditors.
In exchange for this reduction on the balances you owe, you agree to pay the entirety of the balance off quickly – usually in six months or less. You give your money to the debt management company, and they hold your money until you’ve sent enough to pay the creditor in full.
Note that both of these programs will harm your credit score. Credit card and loan companies do report to the credit bureaus if you’re involved in a debt management or debt settlement program. If you need help repairing your credit, try using Credit Repair.
Besides, debt management companies usually charge a monthly fee for their services. Be sure to check out several debt management companies before choosing one.
Also, read the fine print on any debt management or debt settlement plan contracts before you sign. Know exactly what you’ll be paying in fees for their services. Check out the Better Business Bureau (BBB) and other rating sites as well.
6. File to Receive a Currently Not Collectible Status
Another option for settling your tax debt for less is to file for a “Currently Not Collectible” (CNC) status. Having a CNC status on your IRS file will stop levies, letters and collection enforcement from the IRS.
If you can show that IRS collections have put you in financial hardship, you can pause any action to collect your tax debt. The IRS defines “financial hardship” as a situation in which you have little or no room to pay your tax debt once you’ve paid standard cost of living expenses.
What is a Financial Hardship?
They determine this “hardship” status by taking into account all sources of income you have. From there, they assess your cost of living expenses.
Cost of living expenses include items such as:
- Food and clothing
- Housekeeping supplies
- Personal care and services
- Out-of-pocket health care expenses
- Utility expenses such as gas, electric and water
- Transportation expenses such as vehicle payments and maintenance
There are other expenses that may qualify as cost of living expenses as well. The IRS will take your total income and subtract your cost of living expenses. They determine your cost of living expenses based upon their guidelines and your input.
CNC Status is a Short Term Solution
Note that this is a short term solution for saving you money. Receiving a CNC status through the IRS will help you avoid paying, but only until your financial situation improves.
When it does, you’ll again be responsible for paying your tax debt, with interest and penalties added. So, although receiving a CNC status will postpone your tax debt payments, it’s not a long term or permanent solution.
7. Fresh Start Initiative Program
The Fresh Start Initiative Program is a newly expanded IRS program to help people overcome their IRS tax debt.
There are several benefits to the Fresh Start Initiative, including:
- An increased threshold for those wishing to file an Offer in Compromise – from $25,000 to $50,000
- A simplified and accelerated plan for having liens and levies removed after your tax debt has been paid in full
- An increased threshold for tax liens, to $10,000 owed
- A direct debit installment agreement to make paying back tax debts easier
The Fresh Start Initiative Program combines two programs into one: the Offer in Compromise Program (with higher thresholds) and the Installment payment program.
By utilizing both of these programs, you can pay your debt off faster and potentially stop levies and liens.
Who Qualifies for the Fresh Start Initiative Program
As with any government program, there are qualifying criteria you must meet before you’re eligible.
Some of those qualifying limitations include:
- Proving a 25% drop in income if you are self-employed
- Income limits of $100,000 annually for a single person filing taxes and $200,000 annually for joint filers
- A tax balance due that does not exceed $50,000 at the end of the year
To find out more about the Fresh Start Initiative Program, contact a qualified tax debt professional.
If you’re burdened with IRS tax debt, know that there are many solutions to help you. We’ve mentioned seven of the most common ways to settle your IRS tax debt for less here.
However, there are additional options to pay your tax debt as well. Since tax issues can be complicated, we suggest consulting a tax specialist to help you find a way to pay off your tax debt.
Instead of going it alone, contact a tax professional who specializes in helping people with tax debt. A Certified Public Accountant or another tax professional who specializes in IRS tax debt will likely have a better knowledge of IRS rules regarding tax debt.
Also, they’ll be able to help you figure out the best tax debt solution for your situation.
Have you ever struggled with owing tax debt? If so, how did you overcome the situation? Feel free to share by leaving a comment on our Facebook page.