There are 5 common legal options for those with serious income tax debt. The taxpayer can:
1. Challenge the IRS assessment
Challenge the amount of the tax by filing correct returns, amending returns, appealing the audit results, litigating the audit results etc.
2. Use the “Statute of Limitations” to their advantage
The IRS has ten years to collect the tax from the date of assessment plus any time added on by virtue of bankruptcy, collection due process appeal, offer in compromise etc. Many taxpayers are currently on a low payment plan or non-collectible status and simply need to wait a bit longer to remove the debt.
3. Use a partial pay “installment agreement” or “non-collectible status”
A partial pay installment agreement or non-collectible status can be used to pay less then what is owed to the IRS while the statute of limitations continues to run OR until the tax debt becomes dischargeable in bankruptcy.–
4. Offer in compromise –
The proverbial “Oz” at the end of the “yellow brick road”, the successful offer in compromise will allow the taxpayer to settle the tax debt for less than what is owed and often pay the reduced amount over time. If the taxpayer is a “good candidate” and a few other debt problems, this is usually the first and best choice. Unfortunately, most taxpayers don’t qualify and/or have significant other debt.
Income tax debt becomes dischargeable in bankruptcy with some careful planning. Many of our clients with higher income and large consumer and tax debt, use an installment agreement in combination with a bankruptcy to deal with all of their debt.
A well-planned bankruptcy can also help the tax debtor in his or her offer in compromise. The IRS is supposed to consider the amount they would receive via bankruptcy in determining the amount of the offer in compromise settlement number.
Many call bankruptcy the “silver bullet” of tax defense, and with good reason. It is so powerful that anyone with serious tax debt has to at least consider it as an option.
We have helped clients rid themselves of millions of dollars in tax debt via the bankruptcy code.
If you have significant tax debt, please contact an attorney well versed in tax-motivated bankruptcy and its benefits.