“Settle your tax debt for pennies on the dollar!” Not! These late night commercials were targeting vulnerable taxpayers. Who wouldn’t like to pay pennies on the dollar on their tax liability? Unfortunately, it doesn’t work that way. Some of the tax resolution companies that run the “too good to be true” are just that. The Texas Attorney General has filed suit against tax resolution companies running such ads and making “hollow promises.” Be careful if you are considering hiring a tax resolution company. Be particularly cautious if they don’t have a local office where you can go in and meet the professional who is going to help you resolve your tax problems. Owing taxes scares people, but don’t let fear make you spend thousands of dollars hiring someone on line or on the phone who makes promises they can’t deliver on.
You should consider both bankruptcy and non-bankruptcy options for dealing with tax debt and recognize that you may have to pay some or all of the tax debt. Depending on the particulars of your tax situation, bankruptcy may not be the best option for addressing your tax debt. If the tax is large and is also dischargeable, bankruptcy may help by making the tax debt uncollectible. However, if the tax debt is relatively small, not dischargeable and/or you don’t have other debt where bankruptcy provides relief, non-bankruptcy options may be better. Before taking any action, you should consult a qualified bankruptcy attorney who will advise you what your options are both in and out of bankruptcy.
Listed below are a few non-bankruptcy options:
1) Installment agreements – you may be able to enter into an installment agreement by simply filling out the online form if your tax debt is under $25,000 and you can pay it off in 5 years. The IRS guarantees acceptance if you meet certain criteria and the tax debt, excluding penalties and interest, is under $10,000 and you pay it off in less than 3 years. If the tax debt is larger than $25,000, you may still be able to do an installment agreement, but not a “streamlined” agreement where you don’t have to provide financial statements and lots of information.
2) Offers in compromise – depending on your income/assets.
3) Noncollectible status – this is where the IRS acknowledges that you don’t have the income or the assets to satisfy your tax liability. They switch the coding on the account to non-collectible and stop trying to collect it. Don’t be lulled into a sense of security though because this non-collectible status means that the IRS won’t be trying to levy or garnish for now, but they can in the future. Generally, the statute of limitations on collection of taxes by the IRS is 10 years from the date of assessment. So, if the account continues in non-collectible status for over 10 years from the date of assessment, the taxes may be barred from collection by the statute of limitations.
For more information on dealing with taxes, both in and out of bankruptcy, visit our tax page .