In times of financial difficulty, paying taxes can feel insurmountable. The IRS, known for its stringent tax collection methods, might not be the first place you’d look for relief. However, the reality is that the IRS offers several programs specifically designed to help individuals facing genuine financial hardship. These programs aim to ease the burden of back taxes, penalties, and interest, providing a lifeline to those struggling to make ends meet. Understanding these relief options and how to navigate them can be a game-changer. By consulting with Tax Law Advocates experts, you can explore the most suitable tax relief programs and reclaim control of your finances.
What Is Financial Hardship According to the IRS?
However, we must first look at what the IRS considers as financial hardship before looking at the available relief options. The agency takes you as having financial difficulty if you pay your taxes and cannot afford the necessities of life. This involves circumstances under which payment of taxes would hinder you from accessing basic needs such as food, shelter, transport, health care, and other necessities. The IRS criteria for hardship include but are not limited to, income, expenses, and equity in assets.
However, the IRS does have specific programs in place to help those who meet the criteria of these programs. The role of such programs is not to be fully exempt from taxes but rather to develop fairer payment conditions. It is time to look closely at some of the major programs the IRS provides to people in financial trouble.
IRS Programs for Tax Relief
1. Offer in Compromise (OIC)
The most famous IRS tax relief program is the Offer in Compromise (OIC). This program enables you to pay less of the total amount that you owe in terms of taxes than having it paid in full. It’s a way for the IRS to agree to a reasonable amount that one can pay depending on the income, expenditure, and equity of assets. In other words, the IRS admits that recovering the total amount from a filer is impossible. Thus, they accept a smaller amount instead.
OICs are not easily come by as there are specific criteria that one has to meet to be considered for one. The IRS will then review your income, assets, and reasonable expenses for the number of dependents you have. Moreover, you have to prove that the payment of the tax claim can be shown to create a hardship or that there is a question of the amount’s collectibility. It is quite a process and is usually best managed by a professional. Tax consultants can also be helpful when seeking an OIC since they will help you enhance your probability of approval.
2. Installment Agreements
The other popular IRS tax relief option is the installment agreement. This method of payment makes it easier for you to discharge your tax obligations in installments throughout a given period. An installment agreement is another option for those individuals who do not fit the criteria to be granted an OIC so that their tax debts can be paid in a more manageable manner.
The various installment agreements are short-term, long-term, and partial payment installment agreements. Short-term means you can make a one-time payment to clear your dues within 120 days, while long-term means you are given a long period of time to pay your dues. Partial payment installment agreements, which go by their name, allow paying only part of the amount owed to the IRS, depending on the financial abilities of the taxpayer. The IRS also adds interest on the unpaid balance. Still, payments can be made flexibly using this method because of its flexibility in cases of economic hardship.
3. Currently Not Collectible Status (CNC)
Next on the list for people who cannot make any payments due to financial difficulties is the Currently Not Collectible (CNC) status. When the IRS puts your account in CNC status, they suspend all collection actions, including levies and wage garnishments. This does not discharge your tax liability but gives much-needed relief while one gets their financial house back in order.
To be granted CNC status, the client must provide financial statements showing why they cannot pay. This often requires writing a check and producing documents like income statements, monthly spending, and information about your property. Further, when your account is in CNC status, penalties and interest will accumulate on your tax balance. However, the IRS will, from time to time, assess your income status to confirm whether you qualify for this status.
4. Penalty Abatement
You may apply for penalty relief if you are on a list of people with penalties on their unpaid taxes. The IRS will waive or lessen penalties if there is a valid reason for not making the payment, including natural disasters, a severe ailment, or other circumstances beyond your or your employee’s control. The first-time penalty abatement is also for those who have always complied with their tax obligations but could not pay as and when due for one reason or another.
As with most legal matters, applying for penalty abatement entails providing details of one’s circumstances and evidence. While the process might be somewhat complicated, it can help save a lot of money that would otherwise go to penalties and interest on the tax debt.
Conclusion
Debt is very stressful, especially when there are taxes on top of that. However, the IRS has multiple initiatives meant to give leeway to those in genuine trouble with meeting their tax obligations. So, let’s discuss some solutions, starting with an Offer in Compromise and moving on to installment agreements and Currently Not Collectible status.
