Tax Relief and Resolution: 5 Ways to Deal With Tax Debt

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- Federal: $79 to $139. Free version available for Simple Form 1040 returns only.
- State: $0 to $69 per state.
- Expert help or full service filing is available with an upgrade to Live packages for a fee.
What is tax debt relief?
5 tax relief options
1. IRS payment or installment plans
- A payment plan doesn’t get you out of interest for late payment — that accrues until your balance is zero. But getting on a plan can reduce the failure-to-pay fee by half.
- If you owe more than $25,000, you have to make your payments via automatic withdrawals from a bank account.
- If you make your payments with a debit card, credit card or digital wallet, you'll have to pay a processing fee. The charge for debit cards runs from about $2 to $2.50 per payment; the charge for credit cards is about 2% of the payment.
- Lower-income applicants may be able to get their setup fees waived.
2. Offer in compromise
- There’s a $205 application fee and you'll need to make an initial payment — both of which are typically nonrefundable.
- Low-income taxpayers might be able to get this application fee and initial payment waived.
- You have to be current on all your tax returns. If you haven’t filed a tax return in a while, you may not qualify.
- The IRS can file or keep tax liens in place until it accepts your offer and you’ve fulfilled your end of the deal.
- You don’t qualify if you are in an open bankruptcy proceeding.
- You can hire a qualified tax professional to help you do the paperwork, but it’s not required.
- Once you file your application, the IRS suspends collection activities
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3. "Currently-not-collectible" status
- It's temporary — the IRS may review your income annually to see if your financial situation has improved.
- Being deemed "currently not collectible" doesn't make your tax debt go away.
- The IRS can still file a tax lien against you.
- Federal: $79 to $139. Free version available for Simple Form 1040 returns only.
- State: $0 to $69 per state.
- Expert help or full service filing is available with an upgrade to Live packages for a fee.
4. Penalty abatement
5. Hiring a tax relief company
- The IRS rejects most applications for offers in compromise.
- If a tax relief company loses or delays your application, you’re still responsible for your tax debt, interest, and penalties with the IRS.
- You may have to pay an upfront fee to the tax relief company, and it may be a percentage of the tax you owe. That fee may be higher than what you end up saving on your tax bill if the IRS accepts your offer in compromise (and it might not be refundable if the IRS rejects your offer).
- Find out whether you have an outstanding balance with the IRS and how much it is. You can get that (and up to five years of your payment history) at IRS.gov/account.
- Get your tax records. The IRS provides five types of free tax transcripts that let you peek at its records on you. For example, you can see most line items from your tax returns processed during the last three years or get basic data such as your marital status, how you paid and your adjusted gross income for the current tax year and for up to the last 10 years. (Note that a tax transcript isn’t the same as a copy of your tax return.)
- Set up a payment plan with the IRS, as described above.
- See if you qualify for an offer in compromise. The IRS' online offer in compromise pre-qualifier tool can help you determine whether the program might be for you. Remember, the tool is just the beginning of the journey — you'll still need to complete a formal application.
Article sources
- 1. Internal Revenue Service. 2022 Internal Revenue Service Data Book. Accessed Mar 22, 2024.
- 2. Internal Revenue Service. Form 656: Booklet Offer in Compromise. Accessed Mar 22, 2024.
- 3. Internal Revenue Service. Penalty Relief due to First Time Abate or Other Administrative Waiver. Accessed Apr 18, 2024.
- 4. Internal Revenue Manual. 1.2.1.4.2 (12-29-1970) Policy Statement 3-2 (Formerly P-2-7), Reasonable cause for late filing of return or failure to deposit or pay tax when due. Accessed Mar 22, 2024.
- 5. Internal Revenue Service. Penalty Relief for Reasonable Cause. Accessed Mar 22, 2024.
- 6. Federal Trade Commission. Consumer Advice: Tax Relief Companies. Accessed Apr 18, 2024.
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