Addressing serious tax debt can be overwhelming. But putting it off may result in higher penalties, additional interest, and worsening tax liability. The Internal Revenue Service (IRS) recently announced a new tool to help taxpayers work through the available options.
The cycle that lands you with tax debt can be circuitous. It could have been additional taxes, with associated penalties, a problem with an offshore tax account or a Report of Foreign Bank and Financial Accounts (FBAR), or you may have appealed or litigated a tax issue or an IRS audit that leaves a remaining tax burden.
Carrying a tax debt to the IRS is expensive in money, time, and worry. For taxpayers, payment options can include paying the debt off from a credit card or loan to avoid compounding interest. There are also payment plans of different types that have advantages and disadvantages.
Another option for some taxpayers is an Offer in Compromise (OIC), which allows you to propose a reduced payment to the IRS to settle an existing tax liability. OICs are sometimes marketed by misleading third-party vendors as an easy way to erase debt and start fresh. For additional context, download our comprehensive ebook, "Resolving Tax Debt with an Offer in Compromise".
IRS debt tool: understanding your options
In April, the IRS launched the Tax Debt Help tool. The platform is a straightforward way to learn what you can do next, and what payment options may work based on your situation.
IRS Commissioner Frank Bisignano said, “By guiding taxpayers through their options to pay with simple, interactive questions, we’re helping them understand the paths available and take confident next steps.”
When you launch the tool, you are asked questions to identify your situation. These may include whether you are in bankruptcy, whether you can afford monthly payments, your general financial situation, and other factors.
Importantly, like the IRS OIC Pre-Qualifier tool, the Tax Debt tool does not require individuals to enter personally identifiable information such as a name or Social Security number. You can work through the tool to narrow down options for your situation and then evaluate those options more carefully.
Addressing significant tax debt is painful, but important to reduce the possibility of an IRS collection action or see the debt grow larger as time goes by.
When an Offer in Compromise may be an option
Offers in compromise can be a good option for a limited number of taxpayers and often require payment up front. If you would like more information about your eligibility and whether an OIC may be appropriate, contact our law firm at 440-250-9709. We serve clients throughout the U.S. and internationally from our offices in Cleveland and Chicago.
