Owing money to the Internal Revenue Service (IRS) can be an intimidating situation for many. The IRS has the power to seize your assets, garnish your wages and place a lien on your property in order to recover what you owe in back taxes. However, it is important to understand that these actions can be prevented by promptly communicating with the IRS and contacting an experienced Arizona tax relief lawyer who can help you navigate what can be a complex process and help you get rid of your IRS tax debt.

A knowledgeable IRS lawyer can help you assess a number of different options that are available to resolve your tax debt issues. If you’re in need, we’re here to help.

Installment Agreements

The IRS does allow payment of tax debt on an installment basis where the installment amounts are manageable for the taxpayer. The IRS has increased the time period for the payment of the installments from 60 months to 72 months. However, the agreement also carries interest rates and penalties. The longer you take to pay off the installments, the more penalties and interest you will accrue. There are different types of installment agreements.

For example, if you owe $10,000 or less to the IRS (not including penalties and interest), if you’ve filed all your returns and you haven’t been in trouble with the IRS in the last five years, you have a right to what is known as a Guaranteed Installment Agreement. If you are able to pay back taxes in 72 months and you owe under $25,000, you may be able to execute a payment plan with the IRS without disclosing your finances with a Streamlined Installment Agreement. In order to be eligible, you should be current with your filing requirements.

The IRS usually has 10 years to collect back taxes. However, if a payment plan will not fully pay the taxes owed within the time period, you may be able to negotiate what is known as a Partial Pay Installment Agreement. The IRS does require financial disclosure and verification of your income, liabilities and expenses in order to negotiate such an agreement.

It is important to note that the IRS will not negotiate with you if you haven’t filed your tax return the previous year or if you aren’t current with your estimated tax. Once an installment agreement is executed, you must make all payments on time.

Offer in Compromise

This is a program where you may be able to settle your tax debt for less than you owe. It requires making a lump sum or short-term payment plan to pay off the IRS at a reduced dollar amount. This could be a viable option for those who owe the IRS more than what they could afford to pay. An Offer in Compromise gives you the opportunity to pay a small amount as a full and final payment.

In order to qualify for an Offer in Compromise, there are a few criteria. You may qualify, for example, if there is some doubt as to whether the IRS can collect the debt from you in the foreseeable future. You may also qualify if you can show that the payment of your full tax bill would cause “exceptional hardship.”

While an Offer in Compromise might work for some, there are a few disadvantages. You will have to present significant financial documentation including pay stubs, bank records, and other items. Also, if your Offer in Compromise is rejected, the disclosures you made about your assets could give the IRS all the information it needs to accelerate its collection efforts against you. So, it makes sense to not submit an offer unless it is likely to be accepted. Since your interest continues to accrue while you are still in the negotiation process, you could end up owing even more if you don’t make the deal with the IRS.

Filing for Bankruptcy

Filing for bankruptcy may be another option when it comes to wiping out tax debt. You will have a better chance of discharging your debt in a Chapter 7 bankruptcy than a Chapter 13. You can erase debt for federal income taxes if you fulfill the following criteria:

  • The debt must have been incurred on income taxes. You cannot eliminate other types of taxes such as payroll taxes as part of Chapter 7 bankruptcy.
  • Fraud or willful evasion cannot be committed. If you filed a fraudulent tax return or otherwise deliberately tried to evade paying taxes, you cannot file bankruptcy to erase tax debt.
  • The tax debt must be at least three years old. In other words, the amount should have been due at least three years prior to your bankruptcy filing.
  • You should have filed a tax return for the debt that you want to discharge at least two years before filing for bankruptcy. If you have not filed a return, you cannot discharge the tax.
  • The IRS must have assessed the income tax debt at least 240 days before you file your bankruptcy petition.

Some tax debt cannot be discharged under Chapter 7 bankruptcy. Tax liens, for example, are secured taxes, which will remain attached to your property. This applies only to tax liens recorded against your property before your bankruptcy filing. You also cannot discharge a property tax if it is incurred before you file for bankruptcy. Certain employment taxes, excise taxes and custom duties cannot be discharged in a bankruptcy as well.

How Our Tax Attorneys Can Help

There may also be other ways to erase your tax debt. For example, if you inherit your spouse’s IRS tax problems, you can qualify for what is known as the “innocent spouse tax relief.” What this means is that if you can prove that you qualify for relief, you may not be subject to the taxes caused by your spouse or former spouse.

An experienced Arizona tax attorney can also help determine whether the statute of limitations has passed because the IRS has 10 years from the date of assessment to collect all tax debt including interest and penalties from you.

Here at the Pew Law Center, we have significant experience helping clients get rid of their IRS tax debts. We can help you evaluate your options and determine the best possible solutions so you can get that valuable fresh start. Call us at (480) 745-1770 for a free consultation and comprehensive case evaluation.