Tax Debt Resolution – The Factors That Make or Break a Case

Last updated on September 25, 2023

A tax debt case, especially if it is complicated, should be resolved with careful planning and expertise. Even though the IRS will encourage you to pay the total tax debt in one payment, this may not be financially feasible for you. There are various resolution methods to consider when handling a tax debt.

How the Debt was Incurred

The circumstances around your tax debt matter. Was it due to an understatement of taxes? Was it because you filed a joint tax return and your spouse underpaid taxes without your knowledge? Depending on the details of your situation, the ideal resolution can vary. As an example, the IRS provides relief to spouses that get into tax debt because of their partner’s mistakes. If you have a large tax debt, penalty abatement may be possible to relieve part of the burden.

Penalties and Interest

The IRS charges penalties and interest on tax debt until it is paid in full. The penalty amount is usually 0.5 percent, but in some cases it may grow to 25 percent. You need to calculate the amount of penalty and interest charged when resolving taxes through a payment plan.

Until the entire tax debt is paid, the IRS charges penalties and interest on the outstanding amount. Therefore, when paying tax debt in installments, the faster you pay your debt, the less you will be paying to the IRS. The most efficient way to satisfy the debt is in one single payment.

Nonpayment and IRS Collection Actions

Nonpayment of taxes after repeated reminders from the IRS complicates a tax debt and allows for the possibility of assets being seized or sold by the IRS to satisfy the tax debt. The IRS only takes such aggressive steps when it has exhausted all other options of collecting back taxes. In order to avoid harsh collection actions, efforts should be made early to attain a formal resolution.