Category: Uncategorized (Page 4 of 6)

Tax debt is monies owed to the IRS originating from any current or past tax returns. Tax debt may include income tax owed combined with any accumulated interest and penalties. It is important to note that not paying your taxes can result in wage garnishments, levies, and long-term damage to your credit report.

There are many reasons why individuals may find themselves with a large amount of tax debt. The inability to pay tax debt may be the result of a layoff or extended periods of unemployment, illness, divorce, an accident, or the mismanagement of funds. Whatever the reason may be for your tax debt, you can find relief through several solutions or sources.

Short-term solutions for tax debt relief include: borrowing from a family member or a friend, selling any valuables for cash (or liquidating), taking out a short-term personal loan, or applying for an Offer in Compromise (OIC) through the IRS.

Applying for an Offer in Compromise

An OIC can provide relief for taxpayers who cannot pay their tax debt in full or if an installment agreement is not an option. An Offer in Compromise is an agreement between the IRS and a taxpayer that resolves the taxpayer’s debt. The fee for filing is $150, but in some cases the fee may be waived.

With an OIC, the IRS can choose to settle the taxpayers debt by accepting less than the full payment if there is: doubt as to liability, doubt as to collectibility, if the collection of the tax would create an economic hardship or if it would be unfair and inequitable. In order to apply for an OIC, taxpayers should fill out Form 656 (and possibly 656-L), available at Irs.gov. If you assistance, please contact an IRS collection representative at 1-800-829-1040, or preferably, a tax attorney or a certified public accountant (CPA).

There are several things to keep in mind when applying for an Offer in Compromise or when seeking assistance with the process. Obtaining approval for an Offer in Compromise is difficult, so if at all possible, think of a Plan B or revisit the list of short-term and long-term solutions to be absolutely sure that you have exhausted all possibilities.

When seeking assistance with applying for an OIC, it’s best to avoid services that use the following language “settle your tax debts for pennies on the dollar” through the Offer in Compromise Program. Instead, read through Publication 594 (The IRS Collection Process) and stick with trusted names in the industry. Publication 594 is available at Irs.gov or by calling 1-800-829-3676.

Long-Term and Permanent Solutions for Tax Debt Relief

A common long-term solution for tax debt relief is an IRS installment agreement. An IRS installment agreement, also called payment option, payment plan, and payment agreement is an agreement between the IRS and the taxpayer to make payments on taxes owed. You will be charged a fee, interest and penalties to start the installment agreement. Interest and penalties may be minimized of you are able to resolve your tax debt immediately or in a few of months.

Taxpayers with $25,000 or less in combined tax, penalties, and interest are eligible to use the Internal Revenue Services’ Online Payment Agreement (OPA). You can access the agreement at Irs.gov. If you need further assistance, you can contact an IRS collection representative by calling 1-800-829-1040 or contact a tax attorney or a CPA in your area.

A permanent solution for IRS tax debt relief is tax bankruptcy. In the case of tax bankruptcy, you must contact a tax attorney to assist you with this complicated process. In general, if taxes are old enough they are dischargeable in Chapter 7 — if certain criteria are met.

Credit counseling is a service provided by organizations that offer professional counseling for consumers in need of assistance with debt repayment, debt management, and money management. Also called “debt counseling,” credit counseling is also required before filing chapter 7 or chapter 13.

A credit counseling agency will assist you with managing credit card debt and loans such as personal, mortgage, student, and auto. The agency also assists with utility bills and tax debt. A major benefit to credit counseling is that the credit counselor will handle all lenders, collection agencies, and credit card companies for you. This helps to eliminate the stress associated with phone calls from collection agencies and creditors. Your credit counselor will negotiate a repayment plan with your creditors that will significantly lower your monthly payments and interest rates.

You will have the option to send monthly payments to the credit counseling agency or authorize a monthly electronic funds transfer from your bank account. Depending on the credit counseling agency, they may offer an option called “debt management system.” This means you will pay the agency a lump sum. Out of that lump sum, payments will be made on your behalf. This system can protect you against skipped or late payments, which can save money on interest, fees, and any penalties associated with the debt. An additional benefit to credit counseling is that it can educate you on how to better manage your finances and eventually help minimize or prevent future debt.

While there are many advantages to credit counseling, there are also disadvantages. Credit counseling could have a negative effect on your credit. In some cases lenders, specifically mortgage lenders, may not want to extend credit to an individual that may be in the process of completing a credit counseling program. Fortunately, credit counseling notations are dropped from your credit report one month after the counseling program is complete.

Another disadvantage to credit counseling is the potential for fraud. Most credit counseling agencies are legit, but some are nothing more than a scam. The following signs will let you know that the credit counseling agency you’re dealing with is really a scam:

• -Big upfront fees (legitimate agencies typically charge $10-$15 U.S.)
• -Delayed or missing payments
• -No accreditation
• -Unrealistic promises (“settle for pennies,” or “this won’t affect your credit report”)

To protect yourself against fraudulent credit counseling agencies, make sure the agency is approved by the U.S. Trustee Program of the United States Department of Justice. Locating an approved agency is simple. Just log onto www.usdoj.gov and follow these simple steps:

• -Under “Resources” click “DOJ Agencies”
• -Scroll down to “U.S. Trustees Program”
• -Under “Bankruptcy Reform” click “Credit Counseling & Debtor Education”
• -Under “Credit Counseling for Consumers” click “Approved Credit Counseling Agencies”

The search function allows the user to browse through approved agencies by state. You can also follow this link, which will take you directly to the search page.