How to Find Tax Debt Relief

No one looks forward to filing their taxes each year. But Tax Day (usually April 15) is a lot easier when you’re not worried about past-due taxes.

It may sound surprising, but the best way to deal with tax debt is to work with the IRS. They ‌ offer several options to help you pay off your tax debt.

We’ll cover the different forms of IRS tax debt relief and how to get it. We also go through the consequences of failing to deal with that debt.

What Is Tax Debt Relief?

Federal tax debt relief can be anything that helps you get caught up with the IRS. This could include more time to pay or a reduction in the amount that you owe.

The right tax debt relief can help clear up your back tax problems while minimizing the negative impact on your financial life.

You May Like These

Five Facts About Debt Collector Calls You Need to Know

Debt and Divorce: From Division to Debt Relief

Debt Relief Programs: How They Work and What to Look For

IRS Tax Debt Relief Programs

Believe it or not, the IRS understands that it can be difficult sometimes to come up with the money to pay your taxes. They still want you to pay, but they have a variety of ways to help you deal with your tax problems. 

Some examples are described below.

Filing extension

If you aren’t going to be able to get the information you need to file your taxes by the April 15 deadline, you can apply for an extension of time to file. 

Getting an extension gives you until October 15 to prepare your taxes without incurring penalties for late filing.

Note that filing for an extension doesn't get you out of paying without interest or penalties. You’re expected to estimate and pay your taxes by the tax deadline.

However, the penalty for failing to file a return is far more severe than the penalty for not paying on time. So even if you can’t afford to pay your back taxes, filing for an extension could help you minimize penalties and interest.

Short-term payment plan

You can apply for a short-term payment plan if you don't have the money to pay your taxes. This gives you an additional 180 days to pay. There’s no fee for this plan if the amount you owe is paid in full by the deadline.

Installment payment plans

If you don’t expect to be able to pay your taxes in full within 180 days, you can apply for an installment payment plan.

An IRS installment payment plan sets up a series of monthly payments over three to six years. There are costs, including a fee to set up the plan plus interest and penalties. 

Establishing a payment plan stops the IRS from garnishing your bank account or your wages, or seizing your assets. It also saves you from potentially steeper financial penalties and possible criminal prosecution. 

Offer in compromise (formerly IRS Fresh Start Program)

An offer in compromise (OIC) is an agreement to pay less than the full amount of tax debt that you owe. You have to file a request for an OIC, and the IRS has to approve your request for it to take effect. This option used to be known as the IRS Fresh Start Program.

With an offer in compromise, you file documents with the IRS comparing the amount you owe to the value of your assets. You also list your expected income over and above what you need for basic living expenses.

A formula based on that information determines how much of your debt you can reasonably be expected to pay. You’re given two years to pay that amount. If you meet that obligation on time and in full, the IRS forgives the remainder of your tax debt.

There’s an application fee for an OIC. You can ask the IRS to waive the fee if you qualify as a low-income taxpayer.

You’ll also need to submit an initial payment with your application. You can submit one of the following:

• Lump sum payment: You submit a payment of at least 20% with your application. If your offer is accepted, you must pay any remaining balance due on the offer in five or fewer installments.

• Periodic payment: A periodic offer lets you pay the amount you’re offering over six to 24 installment payments. In this arrangement, you submit the first payment with your application and continue making payments while the IRS reviews your offer.

Both types of payments are nonrefundable. The upfront payment requirement may be waived if the IRS considers you a low-income taxpayer.

Watch out for OIC mills, as the IRS calls them. These companies use aggressive marketing to create panic by claiming you have a limited time to resolve your tax debts. They often claim their services are necessary and charge steep fees without delivering results. Any claim of guaranteed results is a big red flag. 

Bankruptcy

It’s possible to get your tax debt forgiven if you file bankruptcy, but this isn’t guaranteed. You may be able to have tax debts discharged in Chapter 7 if they’re more than three years old—as long as you filed your taxes on time. In some cases, you may be able to get tax penalties waived through bankruptcy, but not the original taxes you owed.

Consult with an attorney to discuss whether bankruptcy could provide you with tax debt relief.

How Does Tax Debt Relief Work?

Government debt relief programs, including those at the IRS, don’t kick in automatically. You have to apply for them and be accepted.

If the IRS accepts your application for tax debt relief, it will suspend any other collection efforts as long as you continue to meet the terms of the program. If you satisfy those terms completely, there should be no further consequences. 

However, that only applies to tax debts you acknowledged in applying for the program. It’s not a broad amnesty from all tax debt.

Who Needs IRS Tax Debt Relief?

If you need tax debt relief, you’re far from alone. Millions of Americans are in the same boat. 

IRS statistics show that in 2023, there were about 11.3 million delinquent tax accounts. 

However, it should be noted that at the same time, repayment plans had been set up for millions of delinquent taxpayers. So the system is set up to help you pay your taxes if you’re willing to try. 

How to Get Tax Debt Relief

You can apply for any of the IRS tax debt relief programs online at www.irs.gov. 

To apply, submit your tax debt information and financial resources. Then (hopefully) the IRS approves a payment plan according to the terms of the program. 

There’s one other important requirement. You have to be up to date in your tax filings in order to qualify for one of these tax relief programs. 

These programs aren't intended to be a substitute for filing your taxes. Only by keeping up to date with your tax filings can the full amount of your tax debt be established. The payment plans are then based on that amount. 

What if You Don't Pay Your Taxes?

If filing back taxes and applying for one of these tax debt relief programs seems like a lot of trouble, consider the alternatives. The consequences are even worse if you don’t file your taxes and don’t come to terms with your tax debt.

Some of those potential consequences are outlined below. 

Interest and penalties

If you’re late paying your taxes, you’re likely to face some extra costs in the form of interest and penalties even if you do establish a formal payment plan with the IRS.

However, the penalties are even stiffer if you don’t file and don’t establish a plan to pay your back taxes. 

Also, the sooner you begin paying off your debt, the less interest you’ll pay overall. Otherwise, your tax debt problem will just continue to grow at an increasingly fast pace.

Tax lien

A tax lien is a legal claim on your assets as security against payment of a debt. A tax lien can make your property subject to being forfeited to the IRS. In the meantime, it can severely restrict your ability to get new credit or sell your property.

Private collection activity

It may surprise you to know that the IRS uses private collection agencies for some delinquent taxes. These collection agencies are used to track down people who have not been in contact with the IRS about their tax debt for at least a year.

While some private collection agencies legitimately work on behalf of the IRS, be wary of scams involving people posing as IRS tax collectors. 

Here are three basic tips to help you guard against these scams:

• The IRS will notify you directly in writing before a private collection agency contacts you. 

• A list of the private collection agencies contracted by the IRS is available on the IRS web site. If someone contacts you, make sure their firm is on this list. Reach out to the collection agency at the phone number on the IRS site and verify that the person calling you is a legitimate representative.

• Always make any tax payments directly to the IRS and not to any third-party representative.

Possible criminal prosecution

Most penalties for non-payment of taxes are financial, but you may face criminal prosecution if the IRS believes you have deliberately tried to evade taxes. This usually only occurs if you’ve intentionally committed fraud by hiding income on your tax returns over several years, or if you provided false information during an audit. The IRS is highly unlikely to prosecute you simply because you owe money.

Don’t Just Wait for Your Tax Debt Problem to Go Away

If you owe back taxes, the best course is to come to terms with the problem as quickly as possible. 

If you don’t, the interest and penalties on your back taxes continue to grow and increase your balance. Over time, you could also face collection activities or claims on your income and assets.

Also, don’t assume that the problem will just go away in time. The statute of limitations for non-payment of taxes is a long 10 years. 

The statute of limitations period starts when you file your taxes, so if you’re late filing, the clock doesn’t start ticking until that point.

Also, the statute of limitations doesn’t help if you have fraudulently tried to evade taxation.

A formal tax relief program is the best course if you have tax debt. Take the first step by figuring out which tax debt relief program is best for you and file an application for that program with the IRS.