Questions and Answers about IRS Debt

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I owe the IRS $6,000 in back taxes. What options do I have if I don't have the money to pay?

You have only one option, other than to pay in full, and your eligibility for it depends on your never before having been delinquent with tax payments. If this is true, and if you owe the IRS $50,000 or less, you arrange to pay in installments. With an installment plan, you pay back taxes in installments over a period of months or years. If you have been in trouble with the IRS in the past, or if you owe more than $50,000, this is probably not an option. Contact your local IRS office for specifics.

I have heard that the IRS will sometimes take less than the full amount if you offer to pay in full. Is this correct?

Yes, in some cases the IRS will settle for less than the full amount owed. The official term for this kind of settlement is "offer in compromise." With an offer in compromise, you make one lump-sum payment and your debt is forgiven. There's a minimum you must offer, so please check with the IRS about this and other restrictions. Bottom line: It is a possibility.

If I file for bankruptcy, will my IRS debt be eliminated?

In most cases, no. However, filing a Chapter 13 bankruptcy can help you to spread out your IRS payments over time, halt the accrual of interest charges and penalties, and suspend collection efforts, the garnishment of your wages, and the enforcement of any liens. So although filing for bankruptcy usually won't wipe the slate clean, it can provide some breathing room. The only time an IRS debt can be considered for elimination is when every single one of the following conditions has been met. Even then, there's no guarantee, so please check with your tax adviser.

1. The taxes that you currently owe were assessed at least 240 days before you filed for bankruptcy.

2. The taxes you currently owe are based on a tax return that was filed at least two years before you filed for bankruptcy.

3. The taxes you currently owe are based on a tax return that should have been filed at least three years before you filed for bankruptcy.

4. The taxes you currently owe are not the result of a fraudulent return or an effort on your part to evade tax collection.

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Friday, May 12, 2006 1:57