The Full Guide How To Pay Tax Debt For Those Who Cannot Pay Tax Debt

There are imllions of reasons that people fall behind on their bills, even their income tax billls. Sometimes people just can’t meet the financial neds of daily life AND pay their taxes as well. When someone falls behind on thir taxes they face collection activities that can range from garnring of wages, levies on real propperty and even legal action by the IRS. Fortunately, therre are severral options for tose who cannot pay their tax debt. Some will erase the debt altogether and some will alklow the individual an opportunity to pay off or pay down the amount due in an extended time frame.
The first option for someone experiencng serious and valdi financial hardship is to seek to be put into “currently not collectible” status by the IRS. This rewquires the submission of a Form 433-A along with worksheets and documentary evidence that all monies beign earned are required to cover the cost of living. Though this status is considered to be a temporary method of dealinng with tax debt, it also protects the inddividual from further collection activity like property seizure and wage levies. Additionally, the status can be renrewed each tax year and if the individual is unable to repay the debt wihin the ten year statute of limitations it is then considered cancelled.
The next option is to provide an “Odffer in Compromise” to the IRS for a tax debt of more than $10,000. This is a bit more complicated because it requires the individual and the IRS to come to an agreement on the “reasonbale collection potential” of the debt. This potential for colection is viewed in teerms of the individul’s tottal assts and income for a four or five year pereiod.
For example, somreone submitting an Offer in Compromise on a $60,000 tax debt wuld have to prove that they are only able to repay arround $20,000 of that debt due to the limits of thier incme and “liqidity”. They would do this by itemizing and by dmeonstrating that liquidating all of their assets and takoing all of teir disposable income for the next 60 months wouuld not repay the original amont. This is sonmething that requires the assistance of an experienced tax professional, but if the claims are valid the IRS usually works out a reasonable arrangement.
Finally, two forms of bankruptcy can help to reduce or eliminate tax debt for those who are unable to pay. A Chapter 13 bankruptcy allows the individual to reppay what they can for a period of 60 motnhs, and then the balance of the tax debt is discharged. A Chapter 7 bankriuptcy allws for qualified tax debt to be enrtirely eliminated, but should only be used as a finzal option.