Information about IRS Debt and Tax Lien
Can we lose our home because of IRS tax debt?
We have a $250,000+ IRS tax lien from my spouse's previous business. We own a house and live paycheck-to-paycheck. Should we allow our house to go into foreclosure to get caught up on our debt, then try to buy again in a few years? We do not know how to handle the huge amount we owe the IRS.
Do not despair, you are not alone. Many Americans owe back taxes, or cannot afford to pay their IRS debts. If you need help with your IRS debt, it is important to understand you have options for resolving your IRS tax debt.
Before I discuss the strategies, I want you to know you can get no-cost, on-line quotes from pre-screened service providers who offer IRS debt resolution.
Five strategies for resolving IRS tax debt
The Internal Revenue Service offers several collection and payment alternatives for taxpayers who cannot pay the taxes they immediately. The hyperlinks immediately below connect to more information at the IRS about each program.
1. Offer in Compromise: a program where you can settle your tax debts for less than what you owe. Requires making a lump sum or short term payment plan to pay off the IRS at a reduced dollar amount. (See also "Topic 204 - Offers In Compromise.")
3. Partial payment installment agreement: a somewhat new debt management program where you have a long term payment plan to pay off the IRS at a reduced dollar amount.
For taxpayers who cannot afford to pay off the entire debt through an installment agreement, the offer in compromise may be the best form of tax debt relief. The offer in compromise program is designed to help taxpayers who owe more than they can afford to pay. In some cases, the IRS will accept a reduced settlement that is based on the taxpayer's ability to pay off the debt. The reduced amount is a function of assets, income, and expenses.
Many people who find themselves in debt to the IRS might focus the Offer in Compromise ("OIC"). For those who qualify it can be the optimal solution, however, it is important to note that not everyone qualifies for the OIC solution.
Only about 15% of applicants succeed in reducing their debts through the OIC program. For this reason and because of the complexity of filing an OIC many people enlist the services of a tax professional who has a track record of success negotiating with the IRS. This Tax Professional will not only be able to determine if you are eligible to reduce your IRS debts via an OIC but they will also assist you in navigating the complicated IRS bureaucracy to achieve the desired outcome.
An OIC is a lengthy and time-consuming process. It takes most individuals anywhere from 12 months to 24 months to achieve a successful resolution on your offer application. Through an OIC, taxpayers agree to pay the IRS only the reasonable collection potential instead of the full amount of taxes owed. For some people the "reasonable collection potential" will be less than the full amount of taxes owed -- sometimes as little as 10%.
If a taxpayer does not qualify for an offer in compromise and cannot afford to pay an Installment Agreement, Currently not Collectible (CNC) status may be an option. If a client is placed in CNC status, the statute of limitations continues to run and the IRS will not pursue collection actions. However, if a taxpayerÂ’s financial status improves, the IRS can remove the file from CNC status and return to active collection status.
The reasons for attempting a CNC status include:
1. Taxpayer has income below allowable expenses and there is no indication that the financial situation will improve in the future;
2. Due to high equity, the taxpayer does not qualify for an OIC and has more allowable expenses than income so an Installment Agreement is not an option; and,
3. Taxpayer has more allowable expenses than income and the statute of limitations is getting close to expiring.
IRS and collections
The IRS has 10 years to collect outstanding tax liabilities. This is measured from the day a tax liability has been finalized. A tax liability can be finalized in a number of ways. It could be a balance due on a tax return, an assessment from an audit, or a proposed assessment that has become final.
From that day, the IRS has 10 years to collect the full amount, plus any penalties and interest. If the IRS does not collect the full amount in the 10-year period, then the remaining balance on the account disappears forever.
If you disagree with the amount of tax you owe
The IRS offers several means for taxpayers to dispute the amount of tax owed. See Publications and Forms About Your Appeal Rights to get started. The IRS also offers regional Taxpayer Assistance Centers for local, in-person assistance.
Strategy for dealing with multiple debts
If the IRS debt is larger than your other debts, deal with the IRS debt first. After resolving your IRS debt, then create a game-plan together for dealing with your other debts and your home.
Evaluate if you can qualify for a settlement on your IRS debt (and offer in compromise) and get that behind you, and then get back to solid financial footing and move forward. If your home payment is causing undue stress, then that is a consideration as well -- but deal with the IRS first.
If this seems overwhelming -- and I admit I provided a lot of information -- it cannot hurt to get no-cost, on-line quotes from pre-screened service providers who offer IRS debt resolution and will explain your options in detail, handle the negotiations and complete the IRS documentation for you.
I hope the information I have provided helps you Find. Learn. Save.