What is IRS debt relief? I have heard many people and/or companies refer to IRS help or IRS representation as IRS debt relief when an individual or a business owes taxes to the Internal Revenue Service. I think that “IRS debt relief” focuses on resolving an outstanding tax debt to the IRS and/or lowering an outstanding tax debt to the IRS. Thus, below I will provide some situations and examples for clarification based upon my subjective definition and understanding of the term.
I feel that a successful offer in compromise, which many people refer to as a tax settlement would definitely constitute IRS debt relief. First and foremost, you are resolving the IRS tax debt, and paying a lesser amount than the total tax due to resolve the debt.
Formalizing an installment agreement with the IRS could be considered IRS debt relief. An installment agreement with the Internal Revenue Service is an agreement whereby the taxpayer agrees to make a certain monthly payment to the IRS to resolve the outstanding debt. Thus an installment agreement is IRS debt relief given that the tax debt will be resolved if the taxpayer complies with the agreement thus be relieved of the tax liability. In terms of IRS collection action, I feel that an installment agreement acts as IRS debt relief because there is a hold on any enforcement action such as an IRS bank levy or IRS wage garnishment when a taxpayer is on an installment agreement and is in compliance with the agreement. However, I am not sure I would consider an installment agreement IRS debt relief in the context of lowering the overall tax debt or paying a lesser amount of tax. When a taxpayer is on an installment agreement, it is assumed the entire tax liability will be paid and penalty and interest continue to accrue on the tax debt until the debt is paid in full. Thus, there is not much tax savings when the tax debt is resolved through an installment agreement.
Formalizing a partial payment installment agreement (PPIA) with the IRS could be considered IRS debt relief for the same reasons as stated above and could also be considered IRS debt relief in respect to saving money. A partial payment installment agreement is established when based off of the taxpayer’s current financial circumstances they could make a monthly payment, but given the amount of the tax debt, the amount of the monthly payment and the remaining collection statute the tax debt would not be satisfied if the taxpayer made the monthly payments for the remainder of the collection statute. For example, we will assume that Jeff owes $43,000 to the IRS and the IRS has 50 months remaining to collect on the debt. Based off of Jeff’s 433A (financial statement) Jeff can only pay $250 per month to the IRS. Thus, if Jeff were to pay $250 per month for 50 months, Jeff would have only paid $12,500 of the $43,000 tax debt, and of course, penalty and interest would continue to accrue on the debt until paid. Thus, Jeff’s ability to pay is not an amount that will satisfy the current liability. Thus a partial payment installment agreement can be considered IRS debt relief due to the fact it is a resolution to the tax matter and it may be a tax savings because the total amount of the tax debt is not paid. My only concern with this type of relief is, typically, the IRS can and will request an updated financial statement every two years and if your ability to pay has increased, then so will your monthly payments. Thus, your obligation to the IRS may increase and you may not save money on the tax bill, and may end up spending more because of the penalty and interest that (or is) has been accruing. Moreover, given the current regulations regarding an offer in compromise, I generally find that most taxpayers that would qualify for a partial payment installment agreement would also qualify for an offer in compromise and thus should likely submit an offer in compromise. I feel that an offer in compromise is typically a much better resolution to an IRS debt than a partial payment installment agreement because of the finality to the tax problem and debt. With an offer in compromise, you pay the agreed upon amount, stay in compliance and the tax debt has been resolved. Whereas, with a partial payment installment agreement the IRS can come back every two years and if your ability to pay has increased, the IRS will request more money be paid, and you may end up satisfying the entire tax debt, and paying a large amount of penalty and interest.
A successful abatement of tax penalties should constitute IRS debt relief because you are lowering the overall liability when the IRS agrees to waive all or a portion of the tax penalty. However, unless the tax penalties make up all of the debt, the penalty abatement alone will not completely resolve the tax debt and you likely will need to pay the remaining tax and interest due via a lump sum or installments. Thus, the penalty abatement can save you money, but likely will not resolve the entire problem. If the taxpayer is not a candidate for an offer in compromise, I feel a good resolution can be to satisfy the tax debt through installment payments while working towards the abatement or waiver of the penalties. Thus, you are resolving the debt by making payments and hopefully lowering the tax debt with a successful penalty abatement.
IRS debt relief may come in other forms as well, such as innocent or injured spouse relief, successful protest of the trust fund recovery penalty, successful outcome in US Tax Court and via other means. A Denver tax attorney at The McGuire Law Firm can discuss your options regarding resolving your IRS tax debts or IRS problems.
Contact The McGuire Law Firm to schedule your free consultation with a Denver tax attorney. The McGuire Law Firm currently has offices in Denver, Colorado and Golden, Colorado.