Did you know there are two ways to reduce your IRS tax debt?
1. Dispute the Amount You Owe
The first ways is to dispute the amount you owe with the IRS. There are several procedures available to lower your liability.
Amended Returns. if accepted, can reduce taxes, penalties and interest. And in some cases, our clients who acted quick enough even received refunds.
Did you lose an audit? Well, you have the right to appeal (if you act quick enough) and if you waited too long --- that may be o.k. --- audit reconsideration may be available.
Did the IRS make a mistake in assessment your taxes? In that case either Claim for Refund (Form 843) or an Offer in Compromise (Doubt as to Liability) may do the trick.
Do you think your penalties are unfair? There are a few different penalty abatement procedures available. Some you may be even able to appeal.
Are you stuck with a bill from your current or ex spouse? Recent changes to IRS practice now allow unlimited time to file a claim.
2. Prove Your Inability to Pay the Full Amount
Now, let's say you agree with the amount the IRS says you owe. So the second way you can reduce that amount by proving to the IRS you do not have the ability to fully repay the obligation. And there are four ways to accomplish this.
One is a partial payment installment agreement. Here you pay a nominal amount each month to the IRS. Basically whatever you have leftover at the end of the month after you take care of reasonable living expenses. It won't repay the debt before the statute of limitations expires, so in many ways, this could be the lowest amount you would pay.
Currently Non-Collectible. Some of our clients can't even afford to pay a nominal amount. For these folks, we put them into currently non-collectible status. All they need to do is not run up any new debt, and as long as their income stays low, the debt will go away after the statute of limitation expires.
Offer in Compromise (OIC). For some of our clients, they want to wrap up their debt quicker. So we submit an offer in compromise. The offer in compromise is the trickiest solution, but the most satisfying resolution. There are several disadvantages to filing an offer in compromise, but the big advantage is that if accepted, you will be paying only a fraction of what you owe.
File for Bankruptcy. Lastly, bankruptcy may be able to completely discharge personal tax debts. Trust me. Many of our client do not believe us, but if handled correctly, Chapter 7 Bankruptcy can reduce tax debt to zero! Bankruptcy may be part of, or the entire solution to a tax problem.
In conclusion, it takes a step-by-step approach, with knowledge of all the tools available to lower taxes to find the best deal and end a nagging tax problem that just won't seem to go away.