Methods to Resolve Tax Debt

Last updated on December 5, 2022

There are many ways to resolve a tax debt, including bankruptcy, tax debt reduction and payment in installments, but out of all available methods for tax debt resolution there is always one that will suit your specific circumstances better than others. To choose the most appropriate resolution method and handle the resolution proceedings, taxpayers can either use professional assistancew or do it themselves.

Offer in Compromise

This is an IRS payment plan that reduces the tax debt amount significantly, so that the case can be resolved even if taxpayers do not have the ability to pay the full amount of debt. Qualifying for this payment plan is difficult, as the IRS only considers cases where taxpayers are in a financial difficulty and do not have any means to pay the entire tax debt.

Installment Agreement

Qualifying for an Installment Agreement is relatively easy compared to other payment plans. Taxpayers that have the financial capability to pay the entire tax debt, but not in a lump sum, can pay the debt in monthly installments. Interest and penalties will continue to accrue on the debt amount that remains to be paid.

Currently Not Collectible

If a taxpayer is in a deep financial crisis and cannot pay any amount in tax debt, qualifying for Currently Not Collectible will postpone the payment of tax debt without the risk of facing collection actions. In tax debt reduction and postponement plans, the IRS scrutinizes the financial conditions to determine the capability of the taxpayer to pay the tax debt.

Partial Payment Installment Agreement (PPIA)

Another payment plan that allows tax debt reduction is a PPIA. Only taxpayers who do not have the financial ability to pay the entire amount of tax debt have a chance of qualifying for this payment plan. Like in an Installment Agreement, interest and penalties will be charged to the tax debt amount that remains to be paid.

Bankruptcy

When there is no ability to pay the tax debt, taxpayers have the option to file for bankruptcy if they meet the eligibility criteria. An advantage of filing for bankruptcy is that all collection actions are stopped by the IRS. In some cases, but by no means all, after the bankruptcy proceedings are over, the tax debt is dissolved. It is important to note that tax debt must meet certain requirements in order to be discharged in bankruptcy.

If tax debt is resolved appropriately right from the start, the resolution is faster and more beneficial. For tax debt cases that are complex and might require negotiation with the IRS, it is advisable to use outside help.