We hesitate to compare the Internal Revenue Service with a medieval torture team. From where we sit, they are a nice bunch of people collecting money owed so we can run the country. That said, the federal government did give them a few ‘legal screws’ they can tighten to make sure we settle tax debt within legal limits.
However, the IRS does not want to go to the nth degree by taking us to court. There is some swing room if we are willing to cooperate, play ball, and settle tax debt within their rules. Here we present 5 ways to buy time while we get our affairs in order. The principles are simple, but the details are murky and it could be a good idea to bounce thoughts off a knowledgeable person.
Our 5 Smart Ways to Settle Tax Debt with the IRS
1. Plead Poverty After Falling for a Ponzi Scheme
Running a government is like managing a business in terms of cash flow. If you pay your whole tax debt, the Federal Reserve banks it and spends it over time. It will agree to regular installments provided your debt is under $50,000. Remarkably, if you are the victim of a ‘Ponzi scheme’ the IRS may allow you to claw back up to 40% of your loss. As we said, they do have a heart.
2. Buy Time and Agree to Pay Installments
Even if you do not have a ponzi ball to play, if you apply for a regular instalment plan and do not default, the IRS may agree to accept a lesser pitch. The amount of your instalments depends on the detailed financial information you provide. A skilled tax attorney could help you convince the IRS to reduce your overall debt too.
3. Delay the Date You Start to Settle Tax Debt
The IRS knows it is pointless stripping taxpayers of all their money. It wants us to remain productive so we can pay taxes for the rest of our lives. Armed with this information you could ask the IRS to declare you a ‘currently not collectible’. With this granted, you could defer payments, liens, and garnishes while you get on with rebuilding your life.
4. Apply the Statute of Limitations to Your Advantage
The Statute of Limitations allows the IRS 10 years to collect taxes from the date of assessment. If you are genuinely unable to settle tax debt within this period, then the assessment expires and you start with a clean slate. This can be a difficult project to tackle on your own, because the IRS has ‘played this game’ many times before.
5. Make an Offer of Compromise to Settle some Tax Debt
If you have a lump sum available but not the entire amount, you may be able to settle tax debt for less than the assessed value. The IRS may well be willing to accept ‘jam today’ as opposed to ‘dry bread tomorrow’. They also may allow a short-term payment plan for the lower amount as opposed to a lump sum. If you can come up with a compelling argument, this can be the best way to settle tax debt with the IRS for less.