How to Get Out of Debt from the IRS

Being in debt is an awful situation no matter what, but there’s something particularly intimidating about owing the IRS.

You certainly can’t ignore this type of debt, as the IRS has the power to garnish your wages and of course the longer you wait, the more you’ll pay in the long run. Instead of waiting for the worst to happen, check out these ideas on how to get out of debt with the IRS.

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Consider IRS Payments

One way to get out of debt with the IRS is to make your payments to them in installments. A tax attorney or specialist can likely negotiate the best rate for you.

Installments come with interest, but according to this Defense Tax Group article, there is a “fairly new debt management program where you have a long term payment plan to pay off the IRS at a reduced dollar amount.”

Offer in Compromise

Another alternative for getting out of debt with the IRS is an Offer in Compromise.

This is a program in which you pay a lump sum or have a short-term payment plan, and comes at a reduced dollar amount (if you can prove you don’t have the ability to pay the full amount). If you’re able to do so, you could save thousands of dollars in interest, penalties, and taxes.

File for Bankruptcy

You may elect to file for bankruptcy. Income tax debts are typically eligible for discharge under Chapter 7 or Chapter 13 of the Bankruptcy Code.

You should probably hire a tax specialist to make sure you meet the requirement for discharging your taxes. Under Chapter 7, you’d be allowed to get the full discharge of debts. Under Chapter 13, however, you would repay some debts while others would be discharged.

Establish Not Currently Collectible Status

If you are confident you can get out of debt with the IRS eventually but have hit a rough patch, you can go for the “not currently collectible” status.

Although it’s only a temporary solution, it’s a viable option that allows you to get out of tax debt collection for a year or so. You’ll have to provide the IRS with evidence that you currently have no ability to pay.

It can help you breathe a huge sigh of relief as it can help stop an IRS lien, levy, seizure or the denial of an installation agreement.

Whether you pick up an extra job, borrow money interest-free from a relative, or choose another option to get out of debt, this gives you the breathing room to do so.

Watch the Statute of Limitations

Another tactic? Wait out the statute of limitations. The IRS has 10 years from the date of their assessment to collect penalties, taxes, and interest from you.

If you continue to file for collection appeal to prevent things like liens and seizures all while strategically waiting out this 10-year period, you could get away with not having to pay the debt at all.

Consider Innocent Spouse Relief

If you’ve gone through a divorce or are currently going through one, you could also explore whether you are a candidate for “innocent spouse relief”.

In fact, this is often referred to as an “escape route” if one’s inherited his or her spouse’s IRS tax issues. If you can prove that your circumstances fall within the IRS’s guidelines for innocent spouse tax relief, you might not be subject to the IRS debt at all.

Combat Wage Garnishments and Levies

Lastly, you want to have your tax professional help you to fight wage garnishments and bank account levies. The latter means that the bank is required to remove whatever is available in your account that day and send it to the IRS.

This can leave you with even less control over your finances, including paying other necessary bills—which will obviously send your level of debt into a bigger tailspin.

The Consequences of Cancelled Debt

While it’s quite a relief when the IRS forgives overdue tax debt, beware the consequences. Debt cancellation doesn’t mean your money woes are over.

This is particularly true of a 1099 c cancellation of debt; according to the IRS, any debt that you owed that was “canceled, forgiven, or discharged” becomes taxable. That means you’ll be charged for your relief—however, this amount will likely be significantly less, so there is a silver lining.

Do you owe the IRS? Don’t panic. Hire a certified tax professional, do your research, and follow these tips and you’ll be well on your way to a debt-free existence.