Tax Debt. How Best To Address Tax Debt by Type.

You may find yourself in a position where your debtors have come to include the IRS. This is a situation that should be handled with extreme urgency and care; credit-yogi’s tax experts and attorneys can guide you through this. The IRS is a powerful and relentless pursuer of monies owed. They have the power to attach your real assets and damage your credit rating if the debt owed to them is not satisfactorily handled. You may be in a situation where you can take action on your own, or the situation may be so serious that you must seek professional help.

In addressing this situation, it is important to understand that not all debts to the IRS are the same. There are three basic types of IRS tax debt, each of which can be addressed to varying degrees in different ways.

  • Unpaid taxes. These are taxes on income that was not reported on a return or underpayment of taxes reported on a return.
  • Penalties. Penalties are assessed, in the words of the IRS handbook, to "encourage voluntary compliance by supporting the standards of behavior required by the Internal Revenue Code."
  • Interest. Money owed to the IRS accrues interest daily from the due date of the tax payment to the final payment of the amount owed. It accrues at the federal short-term interest rate plus three percent. The rate is updated quarterly.

Unpaid taxes are the most difficult debts to discharge, however credit-yogi’s tax lawyers specialize in difficult cases. The IRS may pursue unpaid taxes going back as far as three years, and has a statute of limitations of ten years to execute enforced collection actions to have these taxes paid. There are payment plan options that can be arranged to stretch out payments on this debt and possibly even delay the start of those payments. The IRS is generally agreeable to those options. There are only two ways to reduce the amount owed rather than paying it in full. One is to propose an Offer in Compromise to the IRS, persuading them to take what they can get rather than pursue funds that you may never be able to provide. The other way, painful and damaging though it is, is to declare bankruptcy. Additionally, the criteria for bankruptcy and IRS tax debt are very specific and should be carefully considered under the guidance of a professional.

Your options are better for the types of IRS tax debt generated by penalties and interest. Your first consideration is to seek IRS penalty abatement. Penalties based on intentional fraud are almost impossible to obtain relief from. However, penalties based on tax calculation inaccuracies, underpaying estimated taxes, taxes assigned incorrectly by the IRS, and late filing or failure to file may well be excused if appropriate proof is given to the IRS that the fault was not intentional fraud. A professional in IRS tax debt relief can provide help in this area.

Interest debts are a moving target so long as there is outstanding debt. The best way to bring down interest owed is to get as much of the debt as possible paid off as early as possible. Otherwise interest will continue to accrue. Obtaining prompt IRS penalty abatement will have an immediate effect on the compilation of interest debt, as the interest would have been accrued on the penalty owed as well as the taxes owed. In addition, if a penalty is abated by the IRS because you were able to prove that it did not involve an intentional effort to defraud the IRS, interest charged on that penalty before the abatement may be waived. Again, a professional in the field of IRS tax debt relief can be of great assistance in this area.

To find the best possible plan to handle your tax debt, keep in mind all of the options that exist to handle these three types of debt in different ways. Your long term solution may well be a combination of plans rather than a single plan.

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