Dealing with IRS tax debt is unlike dealing with any other debt collector.
Unlike other collectors, the IRS has the power to do things without a filing lawsuit. The IRS can garnish your wages, levy bank accounts, and even put a lien on your home without a judgment from the court. Keep in mind that the IRS would give you plenty of notice before taking anything from you. But, if you owe a large amount of money, you may still feel that the time given may is not enough.
On the other hand, the typical creditor will need to file a lawsuit to collect on an unpaid unsecured debt, such as a credit card or medical bill. Nothing would be taken from you, unless a court determined that it was necessary.
So, what can you do to get rid of your tax debt? Here are three steps that you can take to eliminate your IRS tax debt in California:
Set up an installment plan:
If you owe less than $50,000 in tax debt to the IRS and have been consistently filing your tax returns, you can get set up an installment plan with the IRS to get caught up on your debt. The IRS website has a form available for you to apply for an installment agreement. Click here to get the form. This agreement will give you 72 months to pay off what you owe to the IRS. Do you owe more than $50,000, but less than $100,000 in tax debt? You may still be able to set up an installment agreement.
It is important that you do your due diligence and research this further! As interest will continue to accrue on your debt while you are repaying. There are also penalties to consider. Do not miss a payment! If you miss a payment on an installment plan with the IRS, your settlement agreement can be revoked.
Offer in compromise:
Do you owe tax debt, but cannot afford the monthly payments in an installment plan? Then, there is another option for you. The IRS also has a process available that is known as an “offer in compromise.” In an offer in compromise, the IRS to takes less than what is owed. This is done only if they believe that they will not be able to collect the tax debt.
There are two important requirements to qualify:
- You must offer an amount equal to your disposable earnings over the next one to two years.
- You must offer as much as the liquidation of your assets.
Your excess income or disposable earnings is determined from the information that you provide on Form 433 on your taxes. To determine the liquidation value of your assets, the IRS will look at a quick sale value. This is around 80% of the amount made from the sale of your assets. Once you know your excess income and the liquidation value of your assets, you can submit your offer to the IRS.
File for Bankruptcy:
Filing for bankruptcy is actually a good way to deal with your tax debt. You have the option of filing for a Chapter 13 or a Chapter 7. What you qualify for will depend on your financial situation and your state’s requirements.
A Chapter 7 takes less time. This will stop the IRS collections process for a short amount of time. However, once the bankruptcy if over, they will resume. A Chapter 13 will enable you to set up a payment plan, while eliminating a fair amount of interest and penalties.
Before you take any action, be sure that you are informed. Call us for a free consultation to find out the options that will work best to help eliminate your IRS tax debt.