IRS Tax Debt Relief Programs – If you owe taxes to the IRS and are struggling to pay them, you may be wondering if there are any programs that can help you reduce or eliminate your tax debt. The good news is that the IRS offers several options for taxpayers who are facing financial hardship due to COVID-19 or other reasons. These options can help you avoid penalties, interest, and collection actions, and potentially save you thousands of dollars.
In this article, we will explain what IRS tax debt relief programs are, how they work, and how to apply for them. We will also provide some tips on how to avoid scams and choose a reputable tax professional to assist you with your case.
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What are IRS Tax Debt Relief Programs?
IRS tax debt relief programs are designed to help taxpayers who cannot afford to pay their full tax liability or who would suffer financial hardship if they did. These programs allow taxpayers to either:
- Set up a payment plan with the IRS and pay their tax debt in monthly installments over a period of time.
- Negotiate a settlement with the IRS and pay less than the full amount they owe.
- Request a temporary suspension of collection activities until their financial situation improves.
The IRS evaluates each taxpayer’s case individually and considers their income, expenses, assets, and ability to pay. The IRS also takes into account the impact of the COVID-19 pandemic on the taxpayer’s circumstances.
Types of IRS tax debt relief programs
Currently Non-Collectible (CNC) Status
If you have no income or assets to pay your tax debt, and you are facing a severe financial hardship, such as unemployment, medical bills, or foreclosure, you may qualify for CNC status. This means that the IRS will temporarily stop trying to collect your tax debt until your situation changes. However, this does not mean that your tax debt is forgiven or erased. The IRS will still charge interest and penalties on your balance and may resume collection actions in the future if your income or assets increase.
To apply for CNC status, you will need to submit Form 433-F, Collection Information Statement, along with proof of your income, expenses, and assets. The IRS will review your information and determine if you meet the criteria for CNC status.
Installment Agreement (IA)
If you can afford to pay some of your tax debt over time, but not all at once, you may qualify for an IA. This is a payment plan that allows you to pay your tax debt in monthly installments over a period of up to six years. The amount of your monthly payment will depend on your balance, income, expenses, and other factors.
To apply for an IA, you will need to submit Form 9465, Installment Agreement Request, along with your proposed payment amount and due date. You can also apply online through the Online Payment Agreement tool on the IRS website. The IRS will review your request and either approve it or propose a different payment amount or term.
The benefits of an IA include:
- Avoiding liens, levies, garnishments, and other collection actions by the IRS.
- Reducing or eliminating penalties and interest by paying your tax debt in full over time.
- Having more flexibility and control over your budget and cash flow.
The drawbacks of an IA include:
- Paying more in the long run due to interest and penalties that accrue on your balance.
- Having to pay a setup fee and a monthly fee for maintaining the IA.
- Having to comply with all tax filing and payment obligations while the IA is in effect.
Offer in Compromise (OIC)
If you cannot afford to pay your full tax debt or an IA would create a financial hardship for you, you may qualify for an OIC. This is a settlement that allows you to pay less than the full amount you owe and resolve your tax debt for good. The IRS will accept an OIC only if it believes that it is unlikely to collect more from you in the future.
To apply for an OIC, you will need to submit Form 656-B, Offer in Compromise Booklet, along with Form 433-A (OIC) for individuals or Form 433-B (OIC) for businesses. You will also need to pay a non-refundable application fee of $205 and an initial payment of 20% of your offer amount (for lump sum cash offers) or the first monthly installment (for periodic payment offers). You can also use the Offer in Compromise Pre-Qualifier tool on the IRS website to check your eligibility and estimate your offer amount.
The IRS will review your offer and either accept it, reject it, or make a counteroffer. The process can take several months or longer depending on the complexity of your case.
The benefits of an OIC include:
- Paying less than what you owe and saving money.
- Eliminating interest and penalties on your settled amount.
- Getting rid of liens, levies, garnishments, and other collection actions by the IRS.
- Having a fresh start and peace of mind.
The drawbacks of an OIC include:
- Having to disclose your financial information and assets to the IRS.
- Having to pay a fee and an initial payment that is not refundable if your offer is rejected.
- Having to comply with all tax filing and payment obligations for the next five years after your offer is accepted.
- Having to pay tax on the forgiven amount as income in the year of the settlement.
How to Avoid Scams and Choose a Reputable Tax Professional
If you are considering applying for an IRS tax debt relief program, you may be tempted to hire a tax professional to help you with your case. However, you should be careful and avoid falling for scams or unscrupulous practices by some tax resolution companies. Some of the warning signs of a scam include:
- Promising to settle your tax debt for pennies on the dollar or guaranteeing a specific outcome without reviewing your case.
- Charging high upfront fees or hidden fees for services that are not performed or are unnecessary.
- Asking for your personal or financial information over the phone or email without verifying your identity or credentials.
- Threatening or harassing you to sign a contract or make a payment without giving you time to review it or seek a second opinion.
To protect yourself from scams and choose a reputable tax professional, you should:
- Do your research and check the credentials, qualifications, experience, and reputation of the tax professional or company you are considering. You can use online resources such as the Better Business Bureau, the IRS Directory of Federal Tax Return Preparers, or the National Association of Enrolled Agents to verify their legitimacy and ratings.
- Ask for references and testimonials from previous clients and contact them to get their feedback and satisfaction with their service and results.
- Compare the fees, services, and guarantees offered by different tax professionals or companies and choose the one that best suits your needs and budget. You should also ask for a written contract that clearly states the terms and conditions of the service and the expected outcome of your case.
- Communicate regularly with your tax professional and provide them with all the necessary information and documents to support your case. You should also review any documents or forms they prepare for you before signing or submitting them to the IRS.
- Monitor the progress and status of your case and follow up with your tax professional or the IRS if you have any questions or concerns.
Tax Settlement Firms
Tax settlement firms are for-profit organizations that offer to negotiate with the IRS to reduce your overall tax debt or monthly payment. They claim to have experts such as former IRS employees, lawyers, or accountants who can help you resolve your tax issues. However, not all tax settlement firms are trustworthy or effective. Some of them may charge high fees, make false promises, or even scam you out of your money.
If you are considering hiring a tax settlement firm, you should do some research and compare different options before making a decision. You should also be aware of the pros and cons of each type of tax relief program that the IRS offers, such as currently non-collectible status, installment agreement, or offer in compromise. These programs have different eligibility criteria, benefits, drawbacks, and costs.
Some of the factors that you should look for when choosing a tax settlement firm are:
- Accreditation: The firm should be accredited by a reputable organization such as the American Society of Tax Problem Solvers (ASTPS) or the National Association of Enrolled Agents (NAEA). These organizations have ethical standards and professional requirements for their members.
- Experience: The firm should have a proven track record of successfully resolving tax cases similar to yours. You can check the firm’s ratings and reviews on online platforms such as the Better Business Bureau (BBB), ConsumerAffairs1, or Investopedia2.
- Transparency: The firm should provide you with a clear and honest assessment of your situation and the possible outcomes of your case. The firm should also disclose its fees and services upfront and in writing. You should avoid firms that charge high upfront fees, hidden fees, or guarantee a specific result without reviewing your case.
- Communication: The firm should communicate with you regularly and keep you updated on the progress and status of your case. You should also be able to reach the firm easily by phone, email, text, or live chat. You should avoid firms that are unresponsive, rude, or pressure you to sign a contract or make a payment without giving you time to review it.
One of the tax settlement firms that meets these criteria is Precision Tax Relief3, which offers a 30-day money-back guarantee, an all-inclusive flat-rate fee, and customer service available by phone, text, email, and live chat. The company has been in business since 1967 and has positive reviews from its clients. However, you should still do your own research and compare other options before hiring any tax settlement firm.
In conclusion, IRS tax debt relief programs can help you resolve your tax debt and save money if you qualify for them. However, applying for these programs can be complicated and time-consuming, and you may need professional assistance to increase your chances of success. Therefore, you should do your homework and choose a reputable tax professional who can help you with your case. You should also be aware of the benefits and drawbacks of each program and make an informed decision that works best for your situation.
IRS Tax Debt Relief Programs: Frequently Asked Questions (F&Qs)
What’s the best tax relief company?
lists the following as the best tax relief companies of 2023:
- Best Overall: Precision Tax Relief
- Best Guarantee: Anthem Tax Services
- Best for Large Tax Debt: Fortress Tax Relief
- Best for Small Tax Debt: CommunityTax
- Best for Businesses: Enterprise Consultants Group
- Best for Spanish Speakers: Tax Defense Network
- Best Resources: ALG Tax Solutions
Is the Fresh Start program legit?
Yes, the Fresh Start program is legitimate. It’s an initiative by the U.S. Department of Education (ED) announced on April 6, 2022, to eliminate the negative effects for borrowers with defaulted federal student loans. The program is designed to help borrowers pull their federal student loans out of collections.
What is the new zero-tax program?
The new zero tax program you’re referring to might be related to the American Rescue Plan signed into law by President Joe Biden. This plan delivered $1.9 trillion of aid to support families, businesses, and cities and local governments amid the ongoing pandemic.
One of the impacts of this plan is that it lowers the average individual tax rate to almost zero — and even less — for families earning below $75,000 a year. Taxpayers with income of less than $75,000 are projected to have, on average, no tax liability after deductions and credits when they file their 2021 returns.