Taxation & Estate Planning

How to Handle IRS Debt

By Darrin Mish

Increasing numbers of taxpayers are seeking help in how to handle IRS debt. When faced with a past due tax liability, the circumstances of the taxpayer determine in large part how to handle this IRS debt. If the IRS debt is the result of an audit or a substitute for return, the taxpayer can request an audit reconsideration or file an appeal in an effort to reduce or eliminate the debt. If the IRS debt is an established past due liability on which the IRS is pursuing collection, the taxpayer has a number of options on how to handle the IRS debt in this circumstance as well. A taxpayer may qualify for "hardship" status, a taxpayer may agree to a payment plan, a taxpayer may make an "offer" to the IRS to negotiate a settlement, a taxpayer may pay the tax bill in full, a taxpayer may have the tax debt discharged in a bankruptcy or the taxpayer may wait out the statute of limitations.

The aforementioned options in handling IRS debt are not available to every taxpayer in every circumstance. For example in order to qualify for "hardship" status your income cannot exceed certain national and local averages for life's basic expenses. Additionally, in order to qualify for an installment agreement you must demonstrate to the IRS that you have the monthly surplus income to meet that obligation. How to handle an IRS debt can be nearly as unique as the taxpayer's individual circumstances. As crazy as it may seem, a taxpayer that has a million dollar IRS debt can settle that debt for $1200, while a taxpayer that owes the IRS $15,000 will have to pay every penny plus interest and penalties. It may sound unfair but it's true. Each option in handling an IRS debt has certain conditions a taxpayer must meet in order for it to applicable to their circumstances. It can and does get complicated.

Answering the question, "how to handle IRS debt?", often requires the assistance of a tax professional specializing in solving IRS problems. A qualified professional can help you avoid costly mistakes such as voluntarily waiving your rights, taking action that extends the statute of limitation on collections, or filing a bankruptcy too soon. Not every taxpayer can handle IRS debt by settling for "pennies on the dollar," in fact most taxpayers have more effective options. If you have an IRS debt you should keep in mind that the IRS agent on the other end of the phone is charged with collecting the money. He or she may sound "friendly" and "easy" to work with, but their number one priority is to get the money and secure the government's interest in getting the money. It's well worth the fee to get competent professional to advise you on how to handle your IRS debt. Even if your debt is not reduced, you'll protect your rights, have less stress and sleep better at night.

Full post as published by IRS Problem Solver Blog on August 12, 2008 (boomark / email).