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Daniel Cohen
UpdatedMar 14, 2010
Key Takeaways:
  • File all your back returns, before you work to resolve your tax debt.
  • Review the 5 basic solutions to a tax debt problem.
  • Consult with a tax professional if you have a serious tax problem.

I have $28,000 in IRS debt and have not filed my taxes for two years. What are my options?

Can I get help from you with the IRS? I have not filed for two years and owe at least $28,000.

Thank you for your question about your IRS tax debt and your unfiled tax returns.

File Your Returns

The first thing you need to do is to get filed up to date. When you are not in compliance with your filing requirements, you increase your chances of having the IRS levy your bank account or garnish your wages.

Another important reason to file is that the IRS can prepare returns for you that don't take into account any of the deductions you may be entitled to claim. If the IRS files what they call a "Substitute for Return" (SFR) for you, they only give you your standard deduction. SFRs can lead to a massively larger tax bill for anyone entitled to claim deductions like dependents, work expenses, or mortgage interest.

Once your returns are filed, you can focus on resolving the tax debt.

Tax Resolution

It is important to understand the different IRS tax debt strategies. You should explore getting

getting an Offer In Compromise as a method to settle or resolve this IRS debt. You may be abele to do a streamlined resolution through a good tax relief firm (such as Freedom Tax Relief) if you owe less than that amount.

If you want to get a free consultation, please visit the tax debt savings center.

There are five strategies for getting out of IRS debt.

1. Offer in Compromise: a program where you can settle your tax debts for less than what you owe. Requires proving that you can't pay what you owe, then making a lump sum or short-term payment plan to pay off the IRS at a reduced dollar amount.

2. Installment agreement: a monthly payment plan for paying off the IRS.

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.

4. Not currently collectible: a program where the IRS voluntarily agrees not to collect on the tax debt for a year or so.

5. Filing bankruptcy: discharge your tax debts under the strict rules of a Chapter 7 or 13 bankruptcy petition.

For those 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.

Resolving IRS debt with an offer in compromise

Many people who find themselves with IRS debt 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 Offer in Compromise 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 Offer in Compromise 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 Offer in Compromise 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 Offer in Compromise, 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%.

Resolving IRS debt with an installment agreement

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 taxpayer's financial status improves, the IRS can remove the file from CNC status and return to active collection status. Reasons for attempting CNC status:

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.

Statute of limitations on IRS debt

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 IRS 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. The 10-year clock stops running at certain times, such as when you file an Offer in Compromise or are under the supervision of a bankruptcy court.

I hope the information I have provided helps you Find. Learn. Save.



Get rid of your debt faster with debt relief

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mmichelle, Mar, 2011
My mom at the age of 64 used some of her IRA to move to another state, she replaced the money back to the IRA within 94 days instead of 90. There is a debt now of 39000.00. She has since passed away, how do I get relief from this. She did all the above in 2000.
BBill, Mar, 2011
It is difficult to imagine how a child could have liability for a deceased parent's 11-year-old tax debt. Consult with a lawyer in your state who has experience in probate law. Bring all of the documents relating to the tax and IRA, and any documents you retained regarding probating her estate.
BBill, Jun, 2010
The answer to your question is "yes." Please reread my answer above for options the IRS offers to settle a federal tax debt for less than the full amount.
KKaren, Jun, 2010
I owe the IRS $15000. I was told by an attorney that if I declare chapter 13 bankruptcy, the IRS will forgo interest & penalty charges. Is there any other way to make installment payments to the IRS without incurring interest & penalty charges?