Taxpayers with outstanding tax liabilities who cannot make timely payments can sometimes benefit from seeking relief from tax debt. In some instances, tax debt relief could curb interest and penalties, delay collection activities from the IRS or reduce the amount owed. There are a few alternatives to consider though you need to be mindful to avoid scams.
Internal Revenue Service
The Internal Revenue Service (IRS) offers several options for taxpayers who may need to seek relief. Contact the IRS directly at 1-800-829-1040 to determine your eligibility for any of these programs.
For a one-time fee of $120, you can enter into a monthly installment agreement if your tax debt is less than $50,000. Installment agreements are worth considering as the approval odds are high and, according to Nolo.com, it stops collection proceedings unless you default,
Full Payment Agreement
A full payment agreement gives the taxpayer up to 120 days to pay the outstanding balance. No user fee applies to enter into this type of arrangement.
Offer in Compromise (OIC)
An OIC is an agreement between the taxpayer and the IRS to settle the tax debt for a lower amount than what is owed. It provides immediate relief by stopping collection activities, but a hefty amount may be due upfront to validate the arrangement.
Individuals who are currently in bankruptcy proceedings are not eligible for an OIC. You should also know that "qualifying for one of these offers may be more difficult than qualifying for Medicaid," according to Investopedia.
Temporarily Delayed Collection
The IRS will stop collection efforts for a brief period if you can demonstrate that making payments on the tax debt would prohibit you from covering basic living expenses.
You can also solicit professional assistance in lieu of contacting the IRS directly.
Tax Debt Attorneys
If you need additional assistance, tax debt attorneys can expedite the process by submitting the proper documentation to the IRS and negotiating an affordable payment arrangement on your behalf. Be sure to check their licensure status with the state's bar association, analyze customer reviews and ask for professional references before moving forward.
Tax Settlement Firms
Tax settlement firms are primarily staffed by tax savvy professionals and former IRS employees (in a few cases). Some will propose an OIC agreement to the IRS on their client's behalf. However, chances are they'll be most successful at securing an extension since the approval odds for an OIC are low.
State Tax Debt Relief
There may be some form of assistance available for tax debt in your state, but programs vary across the board. Therefore, you should contact your state comptroller's office using the information found in the National Association of State Auditors, Comptrollers and Treasurer's (NASACTS) directory.
Many debt relief companies over-promise and under-deliver, or fail to deliver at all, notes the Federal Trade Commission (FTC). In some instances, their tactics are just downright fraudulent and will leave you with even more debt than you started with. If you're considering a tax relief company, the FTC suggests you protect yourself by being on the lookout for these red flags:
It's not uncommon for companies to state they can have your tax debts reduced, eliminated or stop collection activities altogether. While they may be able to stop the collection letters if the IRS agrees to enter into an installment agreement with you, it's highly unlikely that they'll have success reducing or eliminating the balance.
Hefty Upfront Fees
Some firms will assess a fee of $1,000 or more before they begin working on your behalf. This may seem like a worthwhile investment if they actually deliver on their promise, but what if they don't? Good luck getting a refund because chances are they won't be offering one.
To add insult to injury, the fees may not stop there. Some complaints received by the FTC noted that "the companies took even more of their money by making unauthorized charges to their credit cards or withdrawals from their bank accounts."
What to Do if You're Victimized
In the event you fall prey to a tax debt scam, you can file a formal complaint with the FTC by calling 1-877-FTC-HELP or by submitting a grievance online through FTC Complaint Assistant. You can also submit Form 14157 (Complaint: Tax Return Preparer) to the IRS.
How to Help Yourself
You may be able to remedy your issue with a simple phone call to the IRS or state comptroller's office. By taking this route, you'll save yourself hundreds, if not thousands of dollars. However, if you need professional help, don't be afraid to reach out to a tax debt attorney or settlement firm. Just be sure to research IRS options before bringing them on board so you'll know what you're getting into.