Welcome to Debt.com’s tax debt relief center! If you owe back taxes to the IRS, you need to act quickly to avoid financial burdens, like receiving a Notice of Federal Tax Lien. Unfortunately, like many debt solutions, you don’t usually know about tax debt relief options until you need them. So, how do you find the best tax debt relief service for your needs?
Q:How does tax debt relief work?
1. First, you find a licensed tax attorney you can trust.
2. They will review your tax returns, as well as your budget and overall financial situation.
3. Then they can help you select the best tax debt relief option for your needs.
In many cases, the initial consultation is complimentary, so you can at least get free tax debt relief advice. Then you can decide what you want to do from there.
Debt.com can connect you with a certified tax specialist that can help you make a plan to eliminate your tax debt!
It’s can be a good idea to at least brush up on the various options available, so you have a rough idea of what you need. There are five basic ways to get relief from tax debt caused by back taxes owed on a tax return:
| Tax Debt Relief Solution | How it works |
|---|---|
| Penalty Abatement | Reduce or remove penalties and penalty interest charges, which can be as high as 25% |
| Installment Agreement (IA) | Set up a repayment plan for one or more tax returns |
| Currently Not Collectible (CNC) | Apply for CNC to stop collection actions if you can’t afford to pay |
| Offer in Compromise (OIC) | Settle tax debt for less than you owe, either as a lump sum or on a repayment plan |
| Innocent Spouse Relief | Qualify for tax debt forgiveness, if your spouse incurred the debt without your knowledge |
Comparing the best tax debt relief companies
There any thousands of tax relief companies you can use, so how do you find the right one for your needs?
- Check the Better Business Bureau, since any legitimate tax relief service should be rated by the BBB. The best relief services have A ratings or higher.
- Read independent third-party tax debt relief company reviews. To see if other people in a similar situation had a good experience. Some bad reviews should be expected, but too many on the same topic could show a pattern.
- Use an accredited tax relief referral network. Companies like Debt.com that offer referral networks typically have their own vetting process to find the best tax debt relief companies, so they do the legwork for you.
Other frequently asked questions about tax debt relief
Q:Does tax debt relief work?
Most tax debt relief happens through a combination of penalty abatement and setting up an Installment Agreement. You pay off everything you owe. However, you reduce the penalties to minimize the cost. Then you spread out the remainder and pay it back in monthly installments over time. It can take a few years, but you’ll be out of debt and straight with the IRS.
Currently Not Collectible (CNC) status can also provide relief if you don’t have the means to pay. As long as you can show that you can’t afford to pay your back taxes, the IRS will stop collection actions. That means you won’t receive another Notice of Federal Tax Lien against your property or worry about levies draining your accounts.
Tax debt settlement is also a legitimate form of relief. However, it’s not as common as you might think. The IRS doesn’t have any statute of limitations on collection like you see with other types of debt. As a result, they’re willing to be patient and wait for you to have the means to pay them back. You only qualify for an OIC if you can show the IRS that there is no reasonable expectation that you can repay the full amount owed.
Q:What about state tax debt relief?
If you use a national tax debt relief company, many have attorneys licensed to work in most or all states. This can be beneficial if you owe back taxes at the federal and state level. It’s one stop to fix all your issues.
Q:How can I avoid IRS tax debt relief scams?
- Tax settlement companies that charge upfront high fees but don’t provide results
- Companies that charge fees by telling you to do something illegal, then they take your money and run.
The second one is the most damaging to you because they advise you to do something that breaks the law. For instance, they tell you to use a new Social Security number or Employer Identification Number. Basically, the advice is to try to hide from the IRS and start fresh with a new identity. This is a felony offense, so don’t do it!
The first scam for settlement is, by far, the most common. Companies claim that they can settle your tax debt for “pennies on the dollar” and that they “guarantee they can reduce your debt.” Again, they charge high fees to give you a quick settlement, but they don’t deliver. They also don’t give you your money back, even though they said they guaranteed the service.
To be clear, tax settlement is possible, but it’s not as common as these companies make it sound. You must fully disclose your financial situation to the IRS. After a thorough review, they may grant an Offer In Compromise ONLY if they see there is no reasonable expectation that you can repay everything you owe.
To avoid scams, just follow the three tips we provide above to review any company before you sign up. As long as you do your homework, you can avoid getting scammed.
Q:Is there such a thing as “do it yourself tax debt relief”?
However, outside of a straight IA for less than $10,000, it’s advisable that you work with a professional tax attorney. That way, you ensure you find the best solution for your needs and don’t overpay.
Q:How does debt relief affect taxes?
In addition, there was also a special federal law created during the Great Recession called the Mortgage Forgiveness Debt Relief Act. It allowed taxpayers to exclude income from the discharge of debt through mortgage restructuring. This allowed homeowners to take advantage of programs like the Home Affordable Modification Program (HAMP) to modify upside-down mortgages without facing additional tax liability.
The issue is that this particular relief act was only supposed to be in place for a short period of time. Congress approved a tax debt relief act extension twice. However, the tax debt relief act extension proposed in 2017 has yet to pass through House committees, so it’s uncertain if the tax forgiveness will continue.
Article last modified on April 25, 2023. Published by Debt.com, LLC
Reviewed By
Jacob DayanAuthor
Expert contributor, Community Tax CEO & Co-Founder
