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Back Tax Debts Are A Huge Problem But Relief Is Available

Back Tax Debts Are A Huge Problem But Relief Is Available

Handling unpaid taxes may be done in a few ways, but most taxpayers aren't aware that there's more than one way to reduce a tax bill. It's very common for taxpayers to believe that working with a settlement company is the only method for paying a tax bill; however, that's just one way to deal with debt owed to the government. It's essential that a taxpayer considers all options available before attempting to settle.

Amend a Past Tax Return

Sometimes a taxpayer makes a mistake on a tax return that increases the amount of tax owed, and submitting an amended tax return may be the best way to reduce a tax burden. Sometimes the IRS may file a tax return on the taxpayer's behalf when none is filed, and this may also lead to higher taxes owed because the IRS doesn't include deductions or exemptions in these returns.

Amending a tax return should be the first step in reducing tax debt if the option is available. Not everyone can point to a past error on a tax form, but it is something to consider before other steps are taken to make deals with the IRS or create payment plans. The only difficulty a taxpayer might experience with this option is that it does require some knowledge of the tax code.

Installment Agreements

An installment agreement is a relatively simple method of paying back taxes and often requires nothing more than a simple application form and a phone call with the IRS. Payments on an installment agreement may be low to start (depending on overall tax debt) and will get a taxpayer in good standing with the IRS. The taxpayer can often choose how much to pay each month, but there is a minimum amount required based upon the total tax debt and the time allotted by the IRS to pay the debt.

This option is a good choice for anyone who wants to stop collection activity from the IRS and it also helps to stop further collection activity. Taxpayers who aren't able to pay very much each month on an installment agreement should be wary of choosing this option because accrued interest might prevent satisfying the debt for several years.

Offer in Compromise

An "offer in compromise" is a popular option for some taxpayers because it reduces total tax debt with a settlement amount that's lower than the total amount owed. Like an installment agreement, an offer in compromise (OIC) requires regular payments to satisfy the full balance, but a larger initial payment is generally required by the IRS.

Huge Changes In Offer-in-Compromise Rules Benefit Distressed Taxpayers

Securing an offer in compromise is a little more difficult than arranging to have an installment agreement because the taxpayer must have no present delinquencies with the IRS and needs to be up to date with other tax payments, such as estimated tax payments. Like the installment agreement, an OIC will help to stop collection activity from the IRS, but a taxpayer must be able to handle a high initial payment.

Statute of Limitations

The IRS has 10 years to complete its collection activity for a tax debt, and after a decade the government agency can no longer use legal avenues to collect back tax debt. However, a taxpayer isn't fully clear of that tax debt because the IRS may still put a lien or a levy upon the property owned by the taxpayer. A lien on a taxpayer's property prevents the sale of assets like property while a levy is the seizure of assets belonging to the taxpayer to satisfy the tax debt.

If a taxpayer has no assets that could be taken by the government to satisfy an old tax debt, waiting 10 years to wipe out back tax debt is theoretically possible; however, most experts don't recommend this option. There are some ways that a taxpayer might accidentally cause an extension of the ten-year statute of limitations, which could mean a longer wait to become free of tax debt.

more about the IRS statue of limitations

Additional Methods for Satisfying Tax Debt

There are a few other methods that might help a taxpayer to satisfy a tax debt, but these methods aren't usually easy to attain. One method is to go through bankruptcy; however, only tax debt older than 3 years is eligible for a discharge through bankruptcy. Alternatively, there is a process called "innocent spouse relief" for taxpayers who have a spouse who was at fault for owing taxes, but qualifying for this type of relief requires several conditions.

Lastly, a taxpayer who has no income or assets may apply to be "currently not collectible," which acts as a temporary hardship or forbearance. The application process for attaining this status is lengthy and isn't a solution for most taxpayers.

Tax attorney Jim Gilland has years of experience and multiple offices across Utah including, Salt Lake City, Saint George, Clearfield and Layton. There are many ways to provide relief from large tax debts however the longer you neglect the problem the worse it will get. Contact Gilland Law Firm PC today and find out what Jim Gilland can do for you.

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posted by Jim Gilland , in:
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