Owing the Internal Revenue Service money for unpaid income taxes is scary. The IRS is not restricted in the methods they can use to collect back taxes like a credit card company or a bank for a personal loan. Unlike banks, the IRS can immediately freeze bank accounts, lien property, and even attach your wages without having to sue you first. So, what can you do to prevent this from happening?
There are generally two methods of dealing directly with the IRS to resolve your back tax debt. The first is an Offer and Compromise settlement arrangement. An Offer and Compromise is generally a lump sum payment to the IRS that will resolve the entirety of your unpaid tax liability. For example, if you owe $50,000 in back taxes, under certain circumstances, you may be able to settle that debt for $20,000. There are a lot of factors that go into how an Offer and Compromise agreement with the IRS is reached and far too many to list here. However, if you have access to a lump sum, this is a good method by which to settle debt with the IRS. What normally prevents a person from settling in this manner is that it does in fact take a lump sum of money, which many individuals just don’t have. This leads to the next method of settling back tax debt with the IRS, an installment payment arrangement.
An installment payment arrangement is a monthly payment plan set up with the IRS. Under this arrangement, the IRS agrees to accept a certain amount of money per month and in return will not pursue collections as long as the payments are made. The payment amount is based on income, the amount of the debt, and what assets the individual has. Does interest and penalty continue to accrue during this payment plan? Yes it does. However, in most cases this is a much better than the IRS attaching wages or freezing a bank account.
The above methods of taking care of tax debt are essentially negotiations with the IRS. This doesn’t always work. In addition, even if you are able to negotiate a payment plan with the IRS, it isn’t always one that you can afford. If that’s the case, bankruptcy is the third viable method (and often the best method) to handle back taxes.
In a bankruptcy, you can force the IRS to take the back taxes over a period of five years of monthly payments. Many times, this payment can be done at zero interest and without continued penalties. You may even be able to eliminate certain older tax debt without any payment at all! This is not a negotiation with the IRS, but is governed by Federal Bankruptcy Law.
How do I know what the best way to handle the debt is for me? Steidl and Steinberg has bankruptcy attorneys and tax attorneys who have helped thousands of people with tax problems. It is almost always a good idea to get an attorney involved when dealing with the IRS, as all of the above methods of dealing with the IRS involve considerable knowledge of the process to do it correctly. The initial meeting with Steidl and Steinberg is free. So, you have nothing to lose by contacting us to see if we can help. We would be more than happy to lead you to right solution for you.