What Happens if You Owe the IRS More Than You Can Pay?

It can feel overwhelming to realize that you owe the Internal Revenue Service (IRS) a hefty amount you cannot pay. Tax debt accumulates slowly, sometimes through underpayment over several years or a business venture that doesn’t generate enough for taxes. The situation demands immediate attention before the IRS takes collection measures against you. 

The actions the IRS pursues against you depend on the amount you owe. If you’re in such a situation, it’s advisable to consult Plymouth bankruptcy attorneys for legal counsel. They can guide you through the various legal strategies to handle the debt. 

<h2>What IRS Debt Relief Options Are Available?</h2>

Don’t panic if you receive a notice from the IRS concerning your tax debt and can’t immediately pay it off, don’t panic. With the help of IRS tax settlement lawyers in Plymouth, you can explore the following IRS tax debt relief programs:

IRS Payment Plans

You can create an IRS debt repayment plan or an installment agreement that enables you to pay off your debt over time through regular payments. You can choose between a short- and long-term repayment plan, depending on how much you owe and what you can afford to remit each month. Both repayment plans can attract penalties and interest until you clear the balance. 

  • A short-term repayment plan lasts 180 days or less and would be suitable if you can clear your IRS debt within six months. You can be eligible for the short-term plan if you owe $100,000 or less in taxes, interest, or penalties. The plan has no setup fees.
  • A long-term repayment plan lasts more than 180 days and would be suitable if you need a longer time to repay your debt. One eligibility criterion is to owe $50,000 or less in total taxes, interest, and penalties. The setup fee is $22 for automatic deductions and $69 for non-automatic withdrawals. 

Offer in Compromise

Plymouth IRS tax settlement lawyers add that you can pay your IRS debt for less than you owe by applying for an offer in compromise (OIC). It is an agreement between you and the IRS to protect your interests and the agency’s. However, the application requirements are stringent, and exploring other debt repayment options first is advisable. 

To apply for OIC, you need to submit the following: 

  • Form 656
  • Form 433-A 
  • An application fee of $205
  • An initial payment 

After you apply, the IRS will evaluate the documents to check your eligibility based on your unique circumstances and the facts surrounding your case. The agency will evaluate your income, asset equity, and expenses. If you’re a low-income filer, it might waive the application fee and the initial payment. 

Getting Approved for OIC

IRS tax settlement attorneys in Plymouth say that the IRS will only accept your application if it determines your offer is the most suitable for you to pay within a reasonable time. If the offer is too low, the agency may ask you to increase it. Once approved, you can pay the amount in a lump sum or monthly installments. 

You must meet the following conditions for the IRS to approve your application:

  • Be current on filing your tax returns and estimated payments 
  • Not be in the process of bankruptcy 
  • Have an approved tax extension for the OIC application year. 

The nuances involved in filing for OIC can be complex and challenging to navigate. Skilled IRS tax settlement lawyers in Plymouth can provide legal insights to increase the likelihood of a favorable outcome. 

Innocent Spouse Relief

You may qualify for innocent spouse relief if you filed a joint return but your spouse unknowingly underreported what you owe. Ensure you request innocent spouse relief within two years after receiving an IRS debt notice. The agency will contact your spouse as part of the review process, which may extend the IRS’ decision period to six or more months. 

Legal experts highlight the following conditions that you must meet before filing the request:

  • You filed a joint return with your spouse 
  • Your spouse underreported your joint taxes due to incorrect deductions, unreported income, or incorrect asset values.
  • You were unaware of the errors. 
  • You live in a community property jurisdiction. 
  • You must also note that Innocent Spouse Relief only applies to the amount of tax owed on your spouse’s income. You’re not eligible for the relief of taxes due on:
  • Your business taxes
  • Your income 
  • Household employment taxes 
  • Employment taxes from trust fund recovery penalties 
  • Individual Shared Responsibility payments 

Currently Not Collectible

Bankruptcy attorneys in Plymouth say the IRS can temporarily pause the collection process against you if it determines that you can’t afford to make payments. Your tax debt won’t disappear, but you will get some relief as you work on your finances and plan to make payments. 

For your account to become “currently not collectible,” you must provide proof of your financial status. This option is for people who can’t truly afford to pay the debt. However, your account will still accrue penalties and interest, so it’s best to start repaying immediately. 

A Skilled Tax Settlement Attorney Providing Legal Options for Handling Tax Debt

Circumstances can arise that plunge you into IRS tax debt. The situation can be stressful because the agency can initiate the collection process against you. Plymouth IRS tax settlement lawyers advise that you can explore various tax relief options to enable you to make payments in installments over an extended period. 

The lawyers at the Benner Law Firm can provide in-depth insights into how each of the above tax relief options works. We can also evaluate your circumstances and advise on the most favorable strategy to enable you to settle your tax debt. Contact us at 774-228-7338 to schedule a FREE consultation.