All too many taxpayers are familiar with the concept of back taxes. Expenses pile up and sometimes it becomes impossible to make the tax payments you know you need to. If you find yourself saddled with years of unpaid taxes and the IRS is looking to collect, you have a few options at your disposal.
Transfer to Credit Card
The IRS may persuade you to convert your back taxes to credit card debt by paying taxes using your credit card. Given the high interest rates typical of many credit cards, however, this option may not be the most feasible, and could actually result in higher debt accumulation. To deal with credit card debt, you could enter into credit negotiations with the credit company and possibly settle for a lesser amount. Overall this maneuver is risky and not highly recommended.
Credit Negotiations with IRS
A popular repayment option for back taxes is the offer in compromise (OIC), essentially a lump sum offer to the IRS for less than the amount owed. Disadvantages with the OIC are that you must have no delinquent returns and have made all estimated tax payments, which eliminates many who owe back taxes. Another, possibly more versatile option is entering into an installment agreement, where you make smaller monthly payments in order to avoid the accumulation of debt while you work to gain financial stability. Advantages of this method include showing a willingness to cooperate and avoiding penalties for nonpayment. Disadvantages are that the debt continues to accumulate interest, and making smaller payments may not be enough to offset earned interest and significantly lower the amount owed.
The Bankruptcy Option
If your tax and other debts are too much, it may be wise to seek the counsel of a bankruptcy attorney. Not all income tax debts are dischargeable, but many are, along with other debts. A bankruptcy lawyer will help you decide if filing is best for you.