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When faced with the stress of tax debt, it's important to know that you have several options for resolving your situation. As a CPA firm experienced in providing support in tax relief, we can guide you through the various avenues available to you, ensuring that you make the best choice for your financial future. Keep reading to learn more about the main options for resolving tax debt, including payment plans, offers in compromise, and bankruptcy. If you’re facing tax debt and seeking settlement, remember that we can offer support and representation when communicating with the IRS. Contact Demian & Company CPAs to schedule a consultation.

Payment Plans

One of the most straightforward ways to resolve your tax debt is by setting up a payment plan with the IRS. This option allows you to pay off your debt in manageable monthly installments over a specified period. The IRS offers several types of installment agreements:

• Short-term Payment Plans: These plans allow you to pay your debt in full within 120 days. They are ideal if you can quickly resolve your tax debt but need a bit more time.
• Long-term Payment Plans: Also known as installment agreements, these plans let you pay off your debt in monthly installments over a longer period, typically up to 72 months. This option is suitable if you owe a significant amount and need an extended period to pay it off.

Utilizing an IRS payment plan offers many benefits, including:

• Manageable Payments: Allows you to pay your debt over time without causing financial strain.
• Avoids Collection Actions: Keeps the IRS from taking aggressive collection actions like wage garnishments or bank levies.

While this might all sound great, keep in mind that there are drawbacks to every option. For installment plans, these drawbacks include:

• Interest and Penalties: Interest and penalties continue to accrue until the debt is fully paid, increasing the total amount you owe.
• Time Commitment: Committing to a long-term payment plan can be daunting and may impact your financial flexibility.

Offer in Compromise

An Offer in Compromise (OIC) is an agreement between you and the IRS to settle your tax debt for less than the full amount owed. This option is suitable if you cannot pay your tax debt in full or if doing so would create a financial hardship.

To qualify for an OIC, you must meet specific criteria:

• Inability to Pay: Demonstrate that you are unable to pay the full amount.
• Reasonable Collection Potential: The IRS considers your income, expenses, assets, and overall ability to pay.
• Compliance: Ensure that you have filed all required tax returns and made all necessary estimated tax payments.

The benefits of an OIC are fairly straightforward:

• Reduced Debt: Settle your tax debt for a fraction of what you owe.
• Fresh Start: Provides a clear path to financial stability and a fresh start.

Settling your debt for less than what you owe can sound like a dream, but an OIC doesn’t work for everyone, primarily for these two reasons:

• Stringent Requirements: The IRS has strict eligibility criteria, and not all applicants qualify.
• Detailed Process: The application process is detailed and requires thorough documentation of your financial situation.

Currently Not Collectible Status

If you’re facing significant financial hardship and cannot afford to make any payments toward your tax debt, you may qualify for Currently Not Collectible (CNC) status. This status temporarily halts IRS collection efforts, such as wage garnishments and bank levies, due to your inability to pay. To qualify for CNC status, you must provide evidence of your financial hardship, demonstrating that you cannot afford to pay your tax debt after covering necessary living expenses.

Benefits of this route to resolving tax debt include:

• Immediate Relief: Stops collection actions, providing immediate financial relief.
• Time to Recover: Allows time to improve your financial situation before resuming payments.

However, there are some very important shortcomings for this plan when it comes to actual debt resolution:

• Temporary Solution: CNC status is temporary, and the IRS will periodically review your financial situation to determine if you can resume payments.
• Interest and Penalties: Interest and penalties continue to accrue on your debt during the CNC period.

Bankruptcy

In extreme cases, bankruptcy may be an option for resolving your tax debt. While not all tax debts are dischargeable in bankruptcy, certain circumstances may allow you to eliminate or reduce your tax liabilities through Chapter 7 or Chapter 13 bankruptcy. To qualify, you must meet the following criteria:

• Type of Tax Debt: Only specific types of tax debts, such as income tax debts, may be dischargeable.
• Age of Tax Debt: The tax debt must be at least three years old.
• Compliance: You must have filed all required tax returns at least two years before filing for bankruptcy.
• Assessment Timing: The IRS must have assessed the debt at least 240 days before filing for bankruptcy.

While a bankruptcy can potentially eliminate your tax debt and give you a fresh start, it does have a fairly significant impact on your credit. It’s also a rather complex legal process, and should only be pursued with careful consideration and professional guidance.

Get the Support You Need

Facing tax debt can be overwhelming, but understanding your options is the first step toward resolution. Whether you opt for a payment plan, an Offer in Compromise, CNC status, or even bankruptcy, it's crucial to have professional support and representation when communicating with the IRS. Our CPA firm can help you in navigating these processes, ensuring that you make informed decisions and achieve the best possible outcome for your financial future.

If you need assistance with resolving your tax debt, contact Demian & Company CPAs today. Our team of experienced professionals is here to help you find the best solution and represent your interests with the IRS. Don't face your tax debt alone—let us provide the expertise and support you need to achieve financial stability.