The US Government estimates that over 11 million people owe the IRS a combined $125 billion so if you owe the IRS, you are not alone. In most cases, people that owe the IRS are self-employed or had a side hustle where they had income that didn’t have any tax withholding. When it came time to file – whether it was due to COVID, divorce, family issues, or just not properly planning financially – you just didn’t have enough to pay the taxes. This tax debt is now weighing on your shoulders and keeping you up at night. You’re worried that the IRS will levy your bank account or garnish your paycheck. Many people think there is no way out of this mess, but that is not the case!
Below are some options that allow you to not pay your liability in full and, in some cases, settle for a lot less than the full amount owed.
Offer in Compromise
An Offer in Compromise allows you to settle your tax debt for less than the full amount you owe. To qualify, the IRS looks at your Ability to Pay, Current Income and Expenses, and Asset Equity. The IRS usually approves the offer if it represents the most that they can expect to collect within the collection statute, and/or paying the tax would create a financial hardship on you and your family.
Partial Pay Installment Agreement (PPIA)
A PPIA is when you negotiate a monthly payment amount with the IRS which could lead to you not paying your tax liability in full (your tax debt may expire). The IRS will review your financial information and your monthly income and expenses when reviewing your proposed monthly payment amount. You will need to prove that your monthly income and expenses don’t allow for you to make a larger payment. Some people refer to this as the back-door Offer In Compromise because of the potential for not paying your IRS tax debt in full.
Penalty Abatement
If you have a balance due with the IRS, there is a good chance a large portion of it is penalty and interest. The most common ways to get penalties abated is through First Time Penalty Abatement and Reasonable Cause. Several examples of reasonable cause for the IRS are natural disasters, medical issues, death, or inability to obtain records.
Currently Not Collectible (CNC)
Simply stated, being placed in CNC means the IRS has agreed to stop attempts to collect back taxes for a period of time. This happens when a taxpayer is able to prove to the IRS that they do not have the ability to pay based on their current income and expenses. This is a great program for someone on a fixed income like Social Security or Pension. This may allow the IRS to extend this until the tax debt expires.
If you would like to learn more about the above programs, please contact JLD Tax at 201-604-2432 or jldonenfeld@jldtax.com for a free confidential consultation.
