Back to the Basics: What are my Options?
I have people ask me all the time, what are my options? Many people think that when you owe the IRS back taxes you only have one choice - to pay them back, in full. In most cases, that is an extremely difficult proposition. Either because there is simply not that much money there in your account or with the penalties and interest, the amount you owe is more like two or three times what your tax returns say.
The truth is, you have many more options depending on your financial circumstances, and that is what we discuss on this blog. There are basically two options, however, those options each have several different possibilities. The first, and best option if it is available, is the offer in compromise. I recently wrote a "Back to the Basics" post about the offer in compromise. This is where you settle your total IRS liability for a lesser amount, and many times this amount is much less. There are types of offers in compromise where you pay a lump sum or make payments over time.
A second option is the installment agreement where you make payments to the IRS on the total liability.
A third option is to request to be placed in currently not collectable status. In order to be placed in this status with the IRS, you must be able to show that your income is exceeded by your allowable expenses. Once you have been placed in currently uncollectable status the IRS will basically leave you alone for up to two years and take no collection action against you. The policy behind this is that you have no disposable income to pay the IRS each month so by not collecting against you in any way allows you to "get back on your feet." The IRS may come back and review your financial situation at a later time, usually one or two years later, to determine if you should remain in uncollectable status or if you are then able to pay some money to the IRS.