If you owe $10,000 or more in taxes, you need to hear about the IRS’ best kept secret: tax debt forgiveness. This brief guide explains what tax relief is and how you can use it to reduce your tax debt.
Millions of Americans are drowning in tax debt. If you are one of them, you know about the stress and frustration of having to deal with the IRS. The taxman doesn’t care about your medical bills, that you lost your job, or that you’re going through a messy divorce.
The IRS can hold on to your refund, take a chunk of your pay, put a lien on your bank account, seize and sell your property and revoke your passport. Uncle Sam also can take 15% of your Social Security check, a benefit that’s off-limits to private creditors.
But that doesn’t have to happen.
There are tax relief programs that may help you wipe your tax debt clean. However, these programs may not apply if you have shown a pattern of evading IRS efforts to communicate with you. So it’s important to take action and resolve these tax issues before it’s too late.
Why would the IRS be interested in forgiving your debt?
The IRS is the biggest and meanest debt collector in the world, right? True. The IRS can put a lien on all your property, withdrawal money from your bank accounts, and even garnish your wages. All without the need of a court order. So, why would the IRS be interested in forgiving your debt? Good question. The answer lies in two rarely published facts about the IRS.
- IRS resources are constrained. Five years of budget cuts by Congress has limited the IRS’ ability to enforce its own laws. The IRS budget has been reduced by $1.2 billion since 2010 despite having 12.8 million more tax returns to process. (Source) Since 2010, the IRS has laid off 17,000 workers, which explains why, in 2015, the IRS only audited 0.7% of all tax returns. (Source)
- You may have heard that the IRS only has 10 years to collect taxes, but did you know it only has 3 years to assess your tax liability after you file a tax return? These time restrictions put a lot of pressure on already overworked IRS agents.
In a nutshell, the IRS does not have the budget to prosecute every case. It would rather focus its resources on wealthy taxpayers who frivolously refuse to pay their tax liability. If you’re struggling to pay back taxes but you’re willing to negotiate, the IRS may be ready to settle. Hire a tax resolution firm and trim your tax debt to a more manageable amount.
How can tax relief help you?
Tax debt relief is the IRS answer to crushing tax debt weighing on so many American families who simply don’t have the money to pay their taxes. IRS tax relief programs help taxpayers by reducing the amount they owe, giving them more time to pay, or a combination of both. It’s a win-win for the IRS and taxpayers.
Remember the IRS is underfunded and overworked. So it prefers to forgive some of your debt than waste its resources going to trial or pursuing a long collection process. Unfortunately, to file a settlement the IRS requires you to complete complicated forms and provide detailed financial reports. Many taxpayers are rightfully wary of sharing financial information that could later be used against them. Therefore, millions of dollars in tax relief go unclaimed every year. You may be entitled to a tax reduction. Don’t miss out. SuperMoney’s tax relief experts can help simplify the process.
What type of tax relief options are there?
There are several tax relief programs taxpayers can apply for, but only three that offer debt forgiveness:
- The Offer in Compromise program
- The Partial Pay Installment Agreement program
- The Penalty Abatement program.
Get a free consultation with a tax relief expert to find out which tax relief programs you qualify for.
The Offer in Compromise Program
An offer in compromise is a settlement where the IRS accepts less than the total debt amount in exchange for a lump sum or up to two years of monthly payments. As far as debt forgiveness goes, offers in compromise are usually the best deal available to taxpayers. The problem is it’s not easy to meet IRS eligibility criteria.
However, since 2010, the IRS has relaxed its standards. In 2015, the IRS accepted 40.3% of all offers in compromise. The acceptance rate is even higher for taxpayers who hire a tax relief company. It’s common for tax relief firms to maintain acceptance rates of over 90%.
Partial Pay Installment Agreement
The Partial Pay Installment Agreement does not get much attention and publicity, but it often has even better terms than offers in compromise.
A Partial Pay Installment Agreement is similar to an Offer in Compromise in that the IRS forgives part of your debt, but it has longer repayment terms: typically, 36 to 72 months. Although Partial Pay Installment Agreements typically includes less debt forgiveness, they are easier and faster to qualify for and you don’t have to provide as much financial information.
If you are late paying or filing a tax return, the IRS will charge you interest and penalty fees. These fees are no joke. The accrual of penalties and interest often represent 50 percent of the initial tax liability, according to a 2015 report by the National Taxpayer Advocate.
The IRS has a penalty abatement program you can use to request a reduction or removal of interest and penalty fees. Unfortunately, many taxpayers are missing out on thousands of dollars of penalty relief simply because they don’t know about these programs or are unable to navigate IRS bureaucracy.
Can you negotiate directly with the IRS?
Although it is possible to negotiate with the IRS by yourself, it is usually not a good idea. If you owe more than $10,000 or you’re facing a tax audit, you should hire a professional tax relief firm. The IRS may be underfunded, but don’t confuse lack of resources with incompetence.
The IRS has a 96% conviction rate and 80% of the cases it wins result in prison sentences. Tax law is extremely complex. Just as with criminal law cases, it is rarely a good idea to represent yourself. When you deal directly with the IRS it is easy to slip-up and provide self-incriminating information that can (and will) be used against you in an audit or criminal investigation. You need a team of professionals on your side.
Do yourself a favor and hire a tax relief firm.
What to look for when hiring a tax relief firm?
Only hire tax relief firms that:
- Have tax attorneys, CPAs and enrolled agents on staff
- Offer flexible payment options
- Are licensed to act as a power of attorney in your state
- Are accredited by the National Association of Tax Professionals
Not sure which company to hire? The top rated company on SuperMoney is Optima Tax Relief. You can also click here and get a free consultation with a tax relief firm that meets these requirements. The consultation is free and there is no obligation to hire. At the very least you’ll know what tax relief programs you qualify for.
Andrew is the managing editor for SuperMoney and a certified personal finance counselor. He loves to geek out on financial data and translate it into actionable insights everyone can understand. His work is often cited by major publications and institutions, such as Forbes, U.S. News, Fox Business, SFGate, Realtor, Deloitte, and Business Insider.