In the midst of tax season we begin to feel the pressure of how last year’s tax liabilities will play out. Some of us will be lucky enough to get a refund, while others will end up owing the IRS. No one sets out to end up in tax debt, but it can happen to the best of us for unforeseen reasons. Fortunately, tax debts can be resolved several ways.
Many people simply do not know that the IRS offers two programs for taxpayers who are experiencing financial trouble. The IRS installment plan can allow a taxpayer to repay their debts in small increments over a period of several years. For those who are experiencing more significant financial hardships, the IRS may allow for the debts to be settled. An Offer in Compromise is a type of tax debt settlement in which the IRS agrees to accept less than is owed, by which the taxpayer repays over time. Both of these programs require that the taxpayer get in touch with the IRS and request a payment arrangement.
The general rule of thumb is that tax debts are not dischargeable in bankruptcy, which applies to taxes such as payroll taxes, tax penalty fees or tax debts from unfiled tax returns. However, income taxes may be eligible for bankruptcy if they meet the following conditions: (1) were not accumulated fraudulently, (2) no attempt was made to evade or ignore payment liability, (3) was acquired on a return that is current and filed with the IRS and (4) is at least three years old.