Dealing with Income Tax Debt

Filed Under Tax Debt

It’s scary to be in debt. It’s scarier still to be in debt to the government. They know where you live, where you work, and where you bank. They will not rest until they’ve gotten their money either – no matter how long it takes. So income tax debt is serious business.

Sometimes the debt can sneak up on you due to circumstances beyond your control. Other times, you build up your IRS tax debt because of poor management or planning. The reason you incurred the debt is important to understand because you need to take steps to rectify that situation as quickly as you can. You need to avoid repeating the problem. But of more immediate importance is how you’re going to deal with the tax debt at hand.

If you have the means, you should pay off the debt immediately. Unfortunately, most people don’t fall into debt when they have the means to prevent it and so most people can’t avail themselves of this option. Most people also find they can’t borrow the money they need to pay off the debt either. So their only practical recourse is to turn to the government itself and negotiate for an IRS tax debt settlement.

This kind of tax debt relief is commonly referred to as an IRS repayment agreement. This is a simple agreement between you and the IRS to repay the amount owed with monthly payments. The payments are usually structured so that you repay the entire balance within a five-year period so the payments can be painful. But the upside is that you pay off your debt sooner.

Also, one of the lesser known provisos of the agreement is that you pledge to pay off all future taxes on time. That is to say you can’t fall into the same situation with your next year’s taxes and expect to simply add that amount to your current amount. The IRS looks down on that kind of behavior.

You can negotiate for this sort of IRS tax debt relief over the phone if you wish but it will be a little difficult. That’s because reaching agents is usually problematic during tax time due to the high call volumes. It can also be difficult because most agents you speak with over the phone will tend to act more like collection agency reps than IRS agents. They’ll try to get you to pay back your tax debt sooner if they can and it may take a little perseverance on your part to move the discussion towards repayment plans.

Another option is to go directly to your nearest IRS regional office and deal face-to-face with an agent. This takes more intestinal fortitude than a phone call but the outcome will be more documented. Regional offices are somber places to visit and most people who go there are not in a happy mood. Plus, they’re crowded, so you need to get their early to get the job done faster. If the office opens at 8:00 a.m. then you should be there no later than 7:30 a.m. because, trust me, there will be a line of people already there.

Take every piece of paper you think you might need with you and when you finally do get to speak to an agent make sure to present your case clearly and concisely. Make sure you understand exactly what’s required of you and get copies of everything you sign. The major benefit of requesting tax debt help directly from an agent is the documentation. The IRS has been known to mail documents to the wrong location and if that happens to you, you have something to prove you were acting in good faith.

When you get to the repayment part of your plan and actually start sending in checks, take a few extra precautions. If you’re mailing your checks, mail them certified with a delivery receipt. That way you have another piece of documentation that shows exactly when you sent them something and when they received it. The costs some extra money but believe me, it’s more than worth it in the peace of mind department. And arrange your budget so you send in your payments early too.

Lastly, don’t miss a payment! If you do, your repayment agreement will be rendered null and void and you’ll be on the hook for the entire outstanding balance. It’s possible to renegotiate back into another agreement but it’s extremely difficult. So be careful.

You can work your way out of income tax debt but it takes some active courage. It’s not an easy road to go down but it will strengthen you up for other things that might come your way later on. Good luck.

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income tax debt, irs tax debt relief, irs tax debt settlement

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