Know your options if you owe the IRS money

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Venar Ayar
Ayar Law Group

Owing money to the Internal Revenue Service, whether from a single year’s filing, back taxes, or failure to file, can strike fear in the heart of most Americans. The dilemma can be especially frightening, when you start receiving collection notices and don’t have the ability to pay.

Some people who fall behind on their taxes become almost paralyzed with fear of the IRS. Ignoring the collection notices will not make them go away. Consumers need to know there are options available to resolve their tax obligations directly with the IRS and through qualified professionals who specialize in tax law.

Consumers should be leery of tax resolution scams and seek help only from qualified professionals. There are only three types of professionals who are qualified to represent consumers before the IRS; Enrolled Agents, Certified Public Accountants, and licensed attorneys. 

When working directly with the IRS, consumers should be aware of three main options for resolving tax debts. First, are settlements.

Generally speaking, the IRS will only accept a settlement after you’ve convinced them that you are never going to be able to pay the debt off, even if you paid it over time via a payment plan,. Once it’s established that you’ll never be able to pay your debt, a formula is applied, based on monthly income, expenses, and assets, to calculate an acceptable settlement amount.

The second option is a payment plan.

For people who don’t qualify for, or cannot afford to pay, the minimum settlement amount, consumers can get on a payment plan with the IRS. There are generally two options under a payment plan; one is a negotiated payment based on your budget, and the other is a Streamlined Installment Agreement allowing people who owe less than $50,000 an opportunity to pay off their debt in six years or less if they agree to automatic monthly withdrawals from their bank account.  In order to qualify, all returns must be filed, up to the current year, before negotiating the payment plan.

A third option is a category called “non-collectible status.”

For people who don’t qualify, or can’t afford a settlement, and are not in a position to pay any amount to the IRS on a monthly basis, there is a category called non-collectible status.  In order to be placed in non-collectable status, a budget analysis is calculated and if your monthly expenses amount to more than what you make, you qualify for this status. In non-collectable status, the IRS agrees that because you cannot afford to pay them right now, they won’t take any action against you such as garnishing your wages or levying your bank account. You will, however, continue to owe the IRS the money; they just have agreed not to come after you for it.

It is always best to seek professional advice when dealing with the IRS to explore additional tax relief options, review your individual circumstances, and find the best solutions.

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Venar Ayar is the principal and founding tax attorney for Ayar Law Group in Southfield. The firm has five offices in Metro Detroit.

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