Taxes are one of the few certainties in life. Most people are able to pay them without it causing any significant hardship. However, some people have tax bills that are so high they are unable to pay their debt to the IRS. Out of fear that they’ll owe more money, they may not file their taxes in the years after they incur the large bill. This merely creates more problems for the taxpayer. Fortunately, there are ways to resolve tax problems without filing for bankruptcy protection. In fact, the IRS actually provides some options to help people settle their tax debt so they can get out of default.
The IRS Fresh Start program allows people who owe a lot of money to make an offer to resolve the debt. In the most common type of offer in compromise, a taxpayer proposes to pay an amount they can afford. This amount is typically their annual disposable income plus the amount of their assets. For example, a person who has $100 a month in disposable income and no assets can make an offer of $1,200 and the IRS may accept it without question. By paying that amount either in one lump sum or in installments, a taxpayer won’t have to pay the remaining balance and any liens the IRS has against them will be canceled.
Although the IRS offers this program, it’s important to continue to file annual tax returns and pay the amount owed. The penalties associated with failure to pay taxes can be significant and it’s unwise to depend on an offer in compromise being accepted. Although IRS Tax Debt Relief is available, it is meant to be used by the people who really need it. It’s important to remember, the IRS has a lot of information about every taxpayer and agents can reasonably determine whether a person should be able to pay their tax bill. Sending in an offer the IRS knows the taxpayer has had the funds to pay may result in a flag on their account that might make it difficult to get this kind of relief when they really need it.