Only few things could be more frustrating that wallowing in a mire of tax debt. If for any reason you find it difficult to pay up your tax debts, the IRS will start seizing your assets. This could be an IRS levy (in which your bank accounts or personal property are seized) or a wage garnishment (in which the IRS can get you to pay your tax debts at all cost is to attach your wages to satisfy the outstanding tax debts). Either way, it causes hardship and stress. And it can be financially devastating.
Whether the IRS is already getting you frustrated, intimidated, or devastated, or you think that is just about to happen, you are not alone. There are many ways to negotiate and reduce your IRS debt and ultimately reduce the hardship it’s causing you.
10 Tips for Negotiating and Reducing IRS Debt
Table of Content
- 1. Stop the IRS from levying your account
- 2. File an Offer in Compromise
- 3. Set up an installment agreement
- 4. Release IRS wage garnishments
- 5. Utilize collection appeals
- 6. Get an Innocent Spouse Relief
- 7. Disclose your offshore bank accounts
- 8. Implement investment fraud representation
- 9. Never ignore late tax returns
- 10. Show proof of a “Currently Not Collectible” Status
1. Stop the IRS from levying your account
If you are owing some tax debt, the IRS can collect back your taxes by issuing a bank levy to take your cash saving and checking accounts. When the IRS levies a bank account, it instructs the bank to remove whatever amount is available in your account (up to the amount of the IRS levy) and send it to the IRS within 21 days, unless otherwise stated by the IRS itself. One of the ways to resolve your IRS debts is to obtain a release of the bank levy imposed by the IRS.
An Offer in Compromise (OIC) gives you the opportunity to pay less than the full amount of your tax debts to the IRS. If the IRS finds that you are truly in financial difficulty and there is doubt as to whether the agency could ever collect the full amount of tax debt, you can save thousands of dollars in taxes, penalties and interest.
Filing an OIC simply entails filling out Form 656 (Offer in Compromise) along with Form 433-A (Collection Information Statement). The OIC contract comes with many terms and conditions that you must abide by to enjoy the tax deduction.
3. Set up an installment agreement
The easiest way to pay off any taxes owed to the IRS is to have a monthly installment payment plan. The IRS itself allows for this, and offers four different types of installment agreements for tax debtors to choose from—depending on how much debt they are owing. These are guaranteed installment agreements (for those owing $10,000 or less in tax debt), streamlined installment agreements (for those owing $25,000 or less), non-streamlined installment agreements (for those owing more than $25,000) and partial payment installment agreements.
4. Release IRS wage garnishments
When you owe the IRS some money, the IRS can levy your wages, salary or federal payments until your tax debt has been fully paid off or the time expires for legally collecting the tax. You can bargain for a release of the garnishment or a modification of its terms if you don’t have enough money to survive with it.
5. Utilize collection appeals
You can file a for a collection appeal to stop an IRS levy, lien, seizure, garnishment, or the denial or termination of an installment agreement. This appeal provides you with the opportunity to make a proposal as how you will go about paying your debts without the IRS levy or seizure. To win this appeal, you must have a solid, credible repayment plan.
6. Get an Innocent Spouse Relief
If your tax debt is compounded because you inherited a huge fraction of it from your spouse, you can get yourself out of the difficult situation by applying for an Innocent Spouse Relief. If you can prove that your circumstances fit within the IRS condition for the relief, you may not be subject to the tax debts owed by your spouse or ex-spouse.
7. Disclose your offshore bank accounts
You will be prosecuted as a criminal if the IRS discovers by any means that you have undeclared funds in foreign bank accounts and yet are owing huge tax debts. So, to reduce your chances of prosecution, minimize severe IRS penalties, and work out a realistic and structured IRS payment plan, be proactive about disclosing details of any funds you have in foreign accounts and obtaining FBAR compliance.
8. Implement investment fraud representation
If you are unable to pay your tax debt because you are facing financial difficulty after falling victim of a fraudulent investment scheme that ripped you off of most of your investment, you may be eligible to take advantage of the united states Tax Code to recoup 30 to 40 percent of your losses. Although this process is highly technical and complex, it can help you reduce taxes paid in previous years, resulting in refund with interest.
9. Never ignore late tax returns
No matter how late your tax return is, have it filed. Until you have all of your legally required tax returns in your file, you don’t stand any chance of successful tax settlement. Not filing your tax returns can lead to huge problems in the future.
10. Show proof of a “Currently Not Collectible” Status
If you are declared Currently Not Collectible (CNC), this means that you have no ability to pay your tax debts. The IRS can declare you “currently not collectible” if you provide convincing evidence that you are unable to pay. To apply for a CNC declaration, you will have to fill Form 433-F and submit it to an IRS revenue officer. Once you are declared currently not collectible, all IRS tax collection activities targeted at you, such as levies and garnishments, will be stopped.