Legally Erase IRS Back Taxes with These Expert Tips
Dealing with federal back taxes with the Internal Revenue Service (IRS) can be a challenging process. But knowing how to legally eliminate or reduce these debts can be extremely helpful. Read along this article to find out how to deal with the IRS back taxes like a pro by following some expert strategies.
What Are IRS Back Taxes?
Back taxes are taxes that you owe but did not pay in the year they were due. This could have happened for several reasons, including failure to report income, failure to file tax returns, or lack of money. The IRS is notoriously aggressive when it comes to collection, and this means penalties, interest, and possibly even legal action. This is a problem that is much more widespread that just the some random people on the news, with the IRS quoting that as of 2022 there was more than $114 billion in unpaid taxes11.
Ways to Legally Cancel IRS Back Taxes
There are also many legal ways to control or even remove back taxes from an individual taxpayer. All of these choices need to be weighed, and generally they need professional help weighing them.
Offer in Compromise (OIC)
An OIC (Offer in Compromise) helps taxpayers pay off their tax bill for less than what they actually owe. If you can show that paying the full amount would be a financial burden, this can be a possibility. The IRS accepted approximately 15,154 offers for about $200M in collections2 in 2021. Eligibility Standards of CriteriaThe eligibility standards dictate that applicants must file any required tax returns and make estimated tax payments for the year at a minimum.
Installment Agreements
If tax debt cannot be paid in full, taxpayers can arrange for installment agreements — a method to pay off the debt over time. This includes short-term and long-term installment plans offered by the IRS. An interest and penalties will accrue until the debt is paid off, but it can avoid more drastic collection actions like garnishment or liens to collect on the tax debt3.
Not Collectible (CNC) Status
If you are facing severe financial difficulties, you could be classified as Currently Not Collectible. This status provides a temporary suspension of IRS collection action with interest and penalties continuing to accrue. You only qualify if you can prove that you are unable to pay your living expenses and your tax debt4.
Innocent Spouse Relief
Where one spouse did not know about tax underreporting or tax mistakes in filing by the other spouse, Innocent Spouse Relief is a method to avoid tax liability for the tax debt. This relief is especially applicable where one spouse filed a joint tax return, and either understated income greater than or claimed excess deductions greater than5.
Pros and Cons of Paying Back Taxes
Back taxes can be resolved to allow a sense of peace and financial peace. And might also help avoid future taxes, interests, etc. which may add up to the tax bill over the period of time. But chasing these legal routes have some expenses, for example OIC application and should you hire a tax professional, you have to also pay for his service. Nevertheless, the long-term gains of resolving tax matters are generally far more valuable than the short-term costs.
Getting Help from Professionals
The tax law is complicated, and sometimes, it is difficult, almost impossible to pursue the issue on your own. A tax professional or attorney can be very helpful in understanding your alternatives and ensuring that you satisfy all the relevant legal obligations. They are the best also by negotiating with the IRS on your behalf can get better terms.
Final Thoughts
Legally negotiating with the IRS over back taxes is a complicated and often difficult process that usually needs expert help. With an awareness of the options, including Offers in Compromise, installment agreements and Innocent Spouse Relief, taxpayers should have a route to fiscal liberation. The process can be long, but the relief of dealing with these issues is worth the effort.