When you find yourself owing back taxes, you may be at a loss for how to proceed. Unfortunately, many taxpayers don’t know the tax relief options open to them until they face various tax debts as a result of IRS audits, fines, penalties, levies, or liens, as well as unpaid payroll taxes and IRS wage garnishment.
Regardless of your tax challenge, there are five primary methods to get tax relief when you owe back taxes. You may be able to take advantage of just one or two of these solutions according to your specific circumstances.
#1 Offer in Compromise (OIC)
An Offer in Compromise is an agreement between the IRS and a taxpayer where the latter pays less than the outstanding taxes they owe. The IRS does not accept all applications for Offers in Compromise - the current success rate is only 25 percent. Still, if OIC is ideal for you, we can help you to settle the debt once and for all to avoid further accrual of penalties and interest on the tax debt.
#2 Penalty Abatement
You can apply for penalty abatement when the IRS tacks an automatic penalty onto your outstanding taxes without considering your situation/reason for nonpayment. A tax relief professional can help you to file ‘reasonable cause’, which is written proof explaining the reason for nonpayment. If successful, you will get the penalties removed (or refunded if paid) and have more time to pay your outstanding taxes.
#3 Installment Agreement
Installment agreements get the best reception from the IRS since the taxpayer undertakes to pay the debt in full. You can choose to pay your outstanding taxes in manageable instalments over some time if you cannot afford to pay at once. You can also seek an extension on an existing installment agreement should your financial situation deteriorate.
However, note that you must apply and meet the requirements before IRS approves your installment agreement. Further, penalties and interest will continue to accrue on the outstanding amount until you have paid in full.
#4 Currently Non-Collectible (CNC)
If you cannot pay your back taxes because your financial situation has deteriorated (e.g. if you lost your job), you can apply for a Currently Non Collectible status. CNC applications can be approved if you show that your total income is less than the allowable living expenses according to federal standards
If your application is approved, the IRS will grant you a reprieve from usual recovery and collection tactics. After 1-2 years, they will reassess your financial situation to determine whether you can resume payments. Also, you are required to notify the IRS if your financial situation improves. Note that penalties and interest continue to accrue while your account is in CNC status.
#5 Tax Audit Appeal
You can contest a tax audit if you feel that the IRS-recommended audit is inappropriate or incorrect. Disputed IRS audits are often settled when you initiate an appeal. Take advantage of the fact that the IRS prefers to resolve such issues because it is expensive, and they lose time and risk judgement against them. You need a tax professional who is familiar with the audit process to negotiate on your behalf.
#6 Innocent Spouse Relief
One spouse can apply for relief from tax liability or penalties for taxes filed jointly. However, you must prove that you were unaware of the understated income or taxes when you signed the tax return. A professional can help you to assess whether this avenue is right for you.
Regardless of the tax relief solution you choose, it is critical to use a reputable and experienced tax relief company. Check their reviews on independent review sites like the Better Business Bureau or get referrals from trusted people in your networks.
The most important thing to remember is that you’re looking for a solution that minimizes or reduces the penalties and interests on outstanding taxes to the barest minimum. That’s what a tax professional can help you to assess according to your particular circumstances.