Blog Post

What if you are finding that you don’t qualify for the most straightforward options for paying off your tax debt? There are other approaches you can take for resolving your tax liabilities… let’s take a look.

Partial Payment Agreements

If you can’t make the minimum payments of the Installment Agreements described in the previous blog (“Settling IRS Tax Debts”), you may want to look into this.

Good things:

  • The payment plan is based on what you can afford after taking into consideration your essential living expenses.
  • It has the advantage of a longer repayment term.

But be aware:

  • The IRS may file a federal tax lien, which could affect your credit rating.
  • You must report your average income and living expenses for the past 3 months.
  • You must provide paystub statements and other supporting documentation.
  • The IRS routinely re-evaluates the terms every two year to see if you might be able to pay more.

“Non-Streamlined” Installment Agreement

This choice is a good way to go if:

  • Your tax balance due is over $25,000
  • You need a repayment term of more than five years
  • You don’t meet any of the criteria for the Streamlined or Guaranteed Installment Plans

But again, be aware:

  • This route will most likely result in a federal tax lien, and there will be financial papers that have to be supplied to an IRS agent so they can analyze what‘s the most you can afford to pay each month.

In addition to these Installment Agreements, there are three other options for setting your tax debts:

  • Offer in Compromise
  • Not currently collectible
  • Filing Bankruptcy

We’ll deal with Offers in Compromise separately in the next blog, but here’s a quick overview of the other two:

Not Currently Collectible is an option if you are unable to pay your tax liability, and feel that collection activity by the IRS would create an economic hardship for you. These are the big issues to be aware of:

  • You must supply ample supporting documentation.
  • The IRS will compare your monthly gross income against what they consider allowable expenses to decide if you qualify.
  • If you achieve this status, then all collection activities (including levies and garnishments) will stop for as long as the status remains,
  • However, the IRS will review your status every 18 to 24 months to see if it is still warranted.
  • Be aware! Frivolous or fraudulent claims in an attempt to gain this status carry severe penalties.

Bankruptcy: There are five criteria that have to be met regarding discharging your tax debt with bankruptcy. These have to do with:

  • when the tax return due date was,
  • when the return was filed,
  • how old the tax assessment is, and
  • making sure the taxpayer is not fraudulent or guilty of tax evasion.

It’s daunting, isn’t it? Choosing the right tax strategy can require professional analysis of your situation – for more help with these matters, contact Litchfield County tax attorney Martha Miller at 860-435-4666, or click on the menu above to explore our website.