A call from a debt collector about an overdue credit card or an unpaid loan is a hassle and something that no one should need to experience, but dealing with back taxes is something that is likely to cause stress and sleepless nights.
With commercials suggesting that your back taxes may allow the government to "take everything you own," you might be tempted to throw away letters from the IRS, but don't believe everything you see on TV.
Depending on your circumstances, you may need to face reduction of some of your assets to cover some of the tax debt. However, remember that the government isn't going to show up on your door one day and seize everything and the kitchen sink. The IRS will work with you to find a solution to unpaid tax debt.
Offers in Compromise and Form 656
One of the options for taking care of your tax debt is called an "Offer in Compromise." This option has been around for a long time and requires that you complete a lengthy document that gives the government details of your entire financial life.
The length of this form does scare some taxpayers away because it seems so complicated. And applying for an Offer in Compromise is no joke. The IRS takes its role seriously and will investigate every claim made on the extensive application.
One of the reasons why it's important to consult with a professional experienced with IRS negotiations is because you'll be able to get a near immediate answer on whether going to the trouble of applying for an Offer in Compromise makes sense.
The equation the government uses to determine whether you're eligible for an Offer is pretty strict, so getting every detail on that form right is essential. A tax professional or lawyer is a valuable ally for this type of project.
Bankruptcy and Tax Debt
In some cases, tax debts might be something you can discharge during bankruptcy; however, all tax debts are not eligible. The "Journal of Accountancy" defines the circumstances when tax debts may be discharged. Those conditions include:
- Tax debt age: A minimum of three years must have elapsed since the tax debt was due. This time may be extended by certain issues like other bankruptcies and tax assistance orders.
- Tax return age: The tax debt referenced in the bankruptcy file must be at least two years old regarding the time at which the original tax return was filed.
- Tax assessment timeframe: A minimum of 240 days must have elapsed since the IRS assessed the filer's ability to pay the tax debt.
Bankruptcy is even more complicated than an Offer in Compromise, so you'll want to speak with a professional on the subject to outline your options.
Need Help Dealing With the IRS?
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DISCLAIMER: All information on this website are provided for informational purposes only and are not intended to be construed as legal advice. Suburban Legal Group PC shall not be liable for any errors or inaccuracies contained herein, or any actions taken in reliance thereon.