If you have recently received notice from the IRS that you own back taxes and you were not able to appeal the decision, you have a few different repayment options. It is important that you explore and choose a repayment option right away.
If you do not choose a repayment option, the IRS can seize money from your bank account or from your paycheck to settle the debt. They can even place a lien against your property.
Set Up A 3 Year Guaranteed Installment Agreement
One of the most popular options for settling back taxes with the IRS is setting up a guaranteed installment agreement. This is essentially a repayment plan that gives you 36 months to pay back the taxes you owe to the IRS with accumulated interest included. The IRS offers this option to individuals who have a record of paying their taxes on time. This can be a great option if you own less than $10,000 in back taxes to the IRS.
Negotiate A Longer Repayment Period
You may also negotiate a longer repayment period with the IRS. Essentially, you need to present the IRS with a repayment plan. You need to state how much you will pay the IRS every month and how long it will take you to pay off your back taxes. If the IRS thinks that your repayment plan is reasonable, they will usually grant a longer repayment period. As long as you keep up with your end of the agreement and make your payments on time, the IRS will not go after your personal bank accounts nor will they garnish your wages.
Offer In Compromise
If you do not qualify for a repayment plan or cannot afford a repayment plan, your other option is an offer in compromise. You have to apply for an offer in compromise. Basically, you present an offer to the IRS to pay a portion of your taxes and ask the IRS to forgive the rest of your taxes. The IRS will take into consideration your ability to pay, your income, your assets and your monthly expenses.
When you make an offer in compromise, you have to either make an initial payment of 20% of your back tax bill with your offer, or you have to submit an initial payment and continue to make monthly payments while the IRS considers your offer.
If you really cannot pay your back taxes, another option is to file for bankruptcy. You will have to present your case to the judge about why your back taxes should be discharged as they are not automatically discharged in either Chapter 7 or Chapter 12 bankruptcy cases. There are specific rules that may limit how much and what tax debts can be discharged in a bankruptcy case.
If you own back taxes to the IRS, the first thing you should do is see if you qualify for a 3 year guaranteed installment plan. If that is not an option or you cannot afford the payments, you can try to negotiate a longer repayment plan with the IRS. You can also try to negotiate and pay off part of your debt and ask the IRS to forgive the rest. Bankruptcy to discharge back taxes should be used as a last resort. For more information, talk to an accountant, like those at James Gioia & Company PC.