How to Reduce IRS Debt

Often times when a person has a large IRS debt of back taxes, it is not due to a fault of their own. Many people are struggling to just survive in today's economy and when you add this to the complicated tax code it is no suprise that so many people end up looking for ways to reduce IRS debt.

If you owe more than $10,000 you should seriously consider hiring a tax professional. Depending on the situation, a tax attorney, CPA or Enrolled Agent experienced in dealing with resolving tax debts will be able to identify which tax reduction method will be right for you based on your particular circumstances.

The most popular method to reduce IRS debt is the Offer in Compromise. With this method of IRS tax settlement, the IRS will accept a lower amount than the amount of tax that is owing. The IRS uses a mulit part formula to compute the amount that they would accept for an Offer in Compromise, but it is largely based on whether they feel they could collect the tax from you over a five year period using all means at their disposal. This type of tax settlement is called a doubt as to collectiblility Offer in Compromise and is the most common type submitted.

Another common popular method to reduce tax debt is the IRS installment agreement or payment plan. With this option you will be allowed to make monthly payments on the back tax debt. You will be required to pay the entire amount off and the unpaid amount will continue to accrue interest. A big advantage of the IRS payment plan is that the IRS will not take any involuntary collection action against you while you are on the plan.

When the IRS computes how much your monthly installment payment will be, they generally only allow pre-approved amounts for housing transportation and basic living expenses. In some cases there are ways to get a smaller more affordable payment by getting the IRS to allow larger personal expenses in their computation. To do this however, unless your tax debt is quite small, you will want to hire a seasoned tax debt resolution professional to negotiate your payment for you.

Interests and penalty reduction is another option that may be available under the right circumstances. If a person has accumlated IRS penalties, but they are able to show "reasonable cause," the IRS will reduce or completely eliminate interest and penalties. Just any situation will not qualify as reasonable cause though. You will have to show you did not file your tax return or pay the tax owing due to circumstances beyond your control. Not having the money to pay the tax will not qualify. Also, the IRS can only legally reduce interest that is related to any penalty that was reduced. They cannot remove any interest by itself.

Partial Payment Installment Agreement - This type of IRS payment plan will allow you to make monthly tax debt payments over the legal amount of remaining time they have to collect the tax from you. In some respects this option can be similar to an Offer in Compromise but has some advantages over an Offer. It is usually only employed when there is a short period of time left on the statute of limitations on collection.