Four Most Effective and Common Back Tax Relief Solutions

If you owe back taxes to the IRS, it can be a serious financial and emotional burden. The IRS can garnish your wages, levy your bank account(s) and place liens and or levies on any property you may own – all without the need for a court order. In addition, penalties for failure to pay can add up quickly. The IRS can penalize you 0.5% of the unpaid taxes for each month or part of a month the tax remains unpaid eventually exceeding 25%.  Being proactive and taking advantage of solutions the IRS may offer is essential to mitigating penalties and back taxes a taxpayer may owe.

The IRS offers numerous tax relief solutions for qualifying taxpayers. Before you explore these solutions, here are commonly used tax relief options offered.

Fresh Start Tax Relief Programs

You have likely heard on TV, Radio or read about these programs.  The IRS fresh start tax relief program is a program that offers multiple types of relief options for taxpayers. Many believe that the fresh start program is the equivalent of an Offer in Compromise, however an Offer in Compromise is only ONE relief program the IRS offers.

Listed below are the 4 most common tax relief programs the IRS offers taxpayers to assist in mitigating back tax liability.

1. Offer in Compromise

An IRS Offer in Compromise (OIC) is a program that offers a taxpayer the potential opportunity to settle their back-tax liability for less than the full amount owed. The qualifications consider the taxpayers yearly income, expenses and value of their assets which ultimately translate into their ability to pay the outstanding liability. The criteria is strict and the application to file is cumbersome.  Any taxpayer that has not filed their required tax returns or made any required estimated payments will not be considered as a candidate for this program.  Read our detailed explanation of an Offer In Compromise including qualification guidelines here.

2. Installment Agreement Payment Plan

An IRS Installment Agreement (IA) or payment plan allows the taxpayer to pay their back-tax liability over a period of time established with the IRS. Installment agreements give taxpayers a practical way to extinguish their liability and avoid garnishments, levies or other IRS collection efforts. There are different forms of installment agreements with different requirements, benefits and criteria to apply.  Taxpayers can apply online, by phone or mail if they so choose. You can read all about IRS payment plans here.

3. Innocent Spouse Relief

When married taxpayers file a joint tax return, both parties are liable for any taxes owed, including penalties and interest that accrue on unpaid taxes. This is the very nature of a jointly filed tax return, both parties receive the potential benefits of filing jointly and both are liable for the tax liability and any penalties, interest, etc., should they encounter back tax liability issues. When a taxpayer pleads innocent spouse relief they’re asking to be relieved of paying the tax, interest, penalties, etc. on the basis their spouse prepared the return improperly which adversely affected the party requesting innocent spouse relief.

The party requesting consideration for innocent spouse relief must prove to the IRS that they were not aware of any errors or omissions on the tax return and shouldn’t be held accountable for their spouse’s tax-related mistakes. Read a detailed explanation of innocent spouse tax relief here.

4. Currently Not Collectible

By requesting Currently Non-Collectable Status (CNC) from the IRS a taxpayer must make the case that paying the tax will result in significant hardship for them. A taxpayer may acknowledge their liability to the IRS, however, plead their case that they’re financially unable to pay the tax on the basis that they have very little or no money left at the end of the month after paying basic living expenses.

While an account is in CNC status, the IRS temporarily delays collection of the liability until the taxpayer’s financial condition improves. The liability is not extinguished it just means it has been determined by the IRS the taxpayer cannot afford to pay the liability at that time.

Bear in mind some of the following regarding CNC:

• The liability continues to increase because penalties and interest are charged until the full amount is paid.
• The taxpayer is still subject to federal tax liens on their home or property
• The IRS continues to monitor the taxpayer’s financial situation.
• The IRS may determine that if a taxpayer’s income has increased, they’re no longer eligible and terminate CNC status.
• Financial monitoring by the IRS is not applicable to those on disability, pension, social security, etc.

If you need any answers on how to evaluate your current situation and find the best tax relief solution contact The W Tax Group. We offer a 100% free consultation on all tax relief matters.

Facing a tax bill in 2025? Then, check out our guide to paying 2024 income tax.