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When people are struggling with tax debt, it can be overwhelming. Failing to pay taxes can result in criminal and civil penalties, so it is important for people to resolve the tax issues that they have. There are several ways for people to obtain relief from tax debts so that they can move forward with fresh starts.

Offers in compromise

When a person owes a substantial amount of money to the IRS and does not have the ability to pay what he or she owes, one option that he or she may have available is called making an offer in compromise. An offer in compromise is when a tax debtor proposes settling his or her tax debt for less than the full amount that is owed. With an offer in compromise, a person submits Form 656 and Form 433-A. The IRS will accept offers in compromise if there is a doubt that the tax debt is collectible or if there is a doubt that the liability is owed. The IRS may also accept an offer in compromise when there is no doubt that the liability exists or that the debt is collectible if collecting the full amount would present an undue economic hardship on the debtor.

If the debtor is submitting his or her offer in compromise when there is doubt as to his or her liability, he or she will submit Form 656-L instead of the other forms. There is a $186 filing fee that must be submitted together with the forms unless it is based on a doubt about liability. The fee may be waived if the person’s income is less than 250 percent of the federal poverty guidelines. The debtor may make a lump sum cash offer or a periodic payment offer. If he or she is making a lump sum cash offer, he or she will need to submit 20 percent of the total amount of his or her offer. If the IRS accepts the offer, then he or she will need to pay off the balance in five or fewer installments after the acceptance. When the debtor is making a periodic payment plan offer, he or she must submit the first proposed payment along with his or her forms. The plan period must range from between six and 24 months after the IRS accepts the offer.

IRS payment plans

People who are not eligible for offers in compromise may negotiate an installment agreement with the IRS. With an installment agreement, people will pay off their entire balances through monthly payments to the IRS. In order to be eligible for an installment agreement, an individual taxpayer must owe less than $50,000 in taxes and must have filed all of his or her required returns.

Innocent spouse relief

Many married couples choose to file joint tax returns. When they do, both spouses are considered to be jointly and severally liable for paying any taxes that are owed. In certain situations, one spouse may be able to apply for innocent spouse relief for tax debts. Innocent spouse relief might be available if a current or former spouse made improper deductions, didn’t report income or reported income improperly. If a person’s application for innocent spouse relief is granted, then the IRS will relieve him or her of the liability of the owed tax debt resulting from the other spouse’s actions.

Discharging through bankruptcy

While most tax debts are considered to be nondischargeable in bankruptcy, income tax liabilities may be discharged in Chapter 7 bankruptcy if certain conditions are met. The tax debt must be from a return that is three years or more old. The return must have been filed at least two years before the bankruptcy petition. If there has been an IRS assessment, at least 240 days must have elapsed before the petition is filed.

Dealing with tax debt can be overwhelming. Fortunately, there are different options that people have in order to get relief from their tax debts.