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The Basics of IRS Tax Debt

Nov 21

Merely mentioning the IRS is enough to send chills down most people's spines and for good reason. The IRS is a powerful agency with authority to collect taxes through any means necessary, including garnishing wages, seizing assets, or throwing people in jail.

Remember, the IRS is a government agency that follows specific rules and regulations. This means they are required to offer you multiple chances to pay your taxes before taking aggressive collection action. So, if you owe the IRS money, know there are ways to prevent collections.

What Is An IRS Tax Debt?

An IRS tax debt is the amount of money you owe in taxes to the federal government, which can cover income taxes, self-employment taxes, and payroll taxes. If you don't pay your taxes on time, the IRS starts charging interest and penalties on what you still owe. And if you keep neglecting your tax debt, the IRS could take legal action to get its money.

How To Avoid An IRS Tax Debt?

There are a few things you can do to avoid an IRS tax debt in the first place. First and foremost, make sure you file your tax return on time every year. Even if you can't pay the full amount owed, it's important to file your return so that you don't incur any late-filing penalties. You should also try to pay as much of your tax bill as possible when it's due to minimize interest and penalties.

If you do find yourself with an unpaid tax bill, don't panic—there are options available to help you get caught up. One option is an installment agreement with the IRS. This allows you to make monthly payments toward your tax debt until it's paid off in full. You can also request a temporarily deferred payment if you need more time to come up with the money you owe. However, keep in mind that both of these options will incur additional interest and penalties.

Another option for dealing with outstanding tax debt is what's known as an offer in compromise (OIC). This is a negotiation between you and the IRS in which you agree to settle your tax debt for less than what you owe. OICs are typically only approved in cases of extreme financial hardship or when there's doubt as to whether or not the full amount of the tax debt could ever be collected from the taxpayer. An OIC will hurt your credit score—but it may be a better option than having your wages garnished or your assets seized by the IRS.

How Can I settle My Tax Debt?

The four most common “reasonable collection alternatives” that courts recognize are paying the debt in full, an installment agreement, an offer in compromise, and temporarily delaying collections.

If you can pay your taxes in full, then that is what you should do. However, if you cannot pay the full amount owed, there are other options available to help lower the amount such as an installment agreement or an offer in compromise.

If you are up-to-date with your tax returns but just need more time to pay off manageable debt, you can request an installment agreement. With this method, you make monthly payments until the debt is gone. However, note that there is a fee for setting up the plan, and also keep in mind that interest and late penalties accrue while on the plan.

Is It Possible For The IRS To Forgive Or Negotiate Tax Debt?

The IRS strives to efficiently and justly collect taxes on behalf of the government while also promoting voluntary compliance. To do so, they allow certain taxpayers to negotiate their debt in a way that benefits both the taxpayer's ability to pay as well as the IRS' goals for collections. Though the IRS does not often forgive debts outright, they are willing to agree to negotiation. Because of this, debt settlement and resolution remain important options for taxpayers seeking relief from their situation.


The bottom line is that if you find yourself owing money to the IRS, don't ignore it—that will only make things worse. Instead, take action immediately to try to resolve your outstanding tax debt before it gets out of control. The IRS offers several payment options that can help make repaying your tax debt easier, so be sure to explore all of your options and select the one that best suits your financial situation.

Are you looking for help resolving your IRS tax debt? Ideal Tax Solution has over 10 years of experience helping taxpayers achieve financial freedom. With several payment options available, they can create a plan that fits your budget and helps make repaying your tax debt easier. It offers a free consultation to help you determine which payment option is right for you. Contact Ideal Tax today to learn more about their services and how they can help resolve your IRS tax debt.