How Fast Does Tax Debt Relief Work?

April 1, 2021

Every year, millions of Americans struggle to pay their taxes, and the problem has only become more pronounced since the pandemic. Luckily, there is a variety of tax debt relief options to choose from, designed to help people in various situations. Although some of them can take months or even a year to work, others can be completed within minutes. Read on to discover the various possibilities and how long your claim is likely to take.

Why Tax Debt Is Such a Problem

Did you know that more than half of all taxpaying Americans pay an inaccurate amount throughout the year? If you’ve paid too little over the course of the year or you haven’t filed your taxes at all yet, you may owe more than you can currently afford to pay. Tax debt is defined as any money you owe to the IRS and can affect you even if you’ve already filed your return and made a partial payment.

Unpaid taxes are a big issue, whether you have a small amount, a large amount, or you don’t yet know how much you owe. It’s important to find a solution quickly because your debt grows over time. Each month, the IRS adds 0.5% to your unpaid balance, up to 25% of the total amount. There are also additional penalties and interest to consider, so your debt can grow rapidly if it’s not addressed.

Methods of Tax Debt Relief

There are five main ways of getting relief on your outstanding tax debt. Each one comes with a different set of requirements and timeline, so they need to be considered individually. However, in virtually every situation, it is a good idea to get your taxes filed as a first step. If you don’t, the IRS may do this for you, and they won’t apply any reductions you may be entitled to you. You also won’t know exactly how much you owe until you’ve filed your return.

If you haven’t started yet and are not sure how to accomplish this, contact a local tax consultant, who will be able to help you gather all of the necessary information and submit it to the IRS. Once you’ve filed your return, you can determine whether you will be able to pay the outstanding balance or not. In case you think this will be difficult, you can discuss the different methods of debt relief and how fast they will work with your consultant.

Penalty Abatement

If you failed to pay your tax due to circumstances that were outside of your control, you could be eligible for penalty abatement. This means that you won’t have to pay the charges in case of a natural disaster, death, serious illness, or if you were unable to obtain records. Other situations in which you might be able to benefit from penalty relief is if you received incorrect information from the IRS or if you have not incurred any other penalties in the past 3 years.

The first step to secure penalty abatement is to check how much you owe and then discuss with your tax consultant whether you should call the IRS or send a letter. If your penalty is small, it’s generally advisable to ask for relief via a phone call, as you are likely to get an instant decision. When requesting via letter, they will usually get back to you within 2-4 months. At that time, all the penalties will be wiped from your account.

Installment Agreement

Another simple way to get help is to ask for a payment plan. This can work well if you are just experiencing a cash flow issue but think you’ll be able to pay off your debt in the future. With a short-term payment plan, you’ll pay the tax within 180 days and with a long-term plan, you’ll pay in monthly installments over a longer period of time. The second comes with more fees but is available to businesses as well as individual taxpayers.

This method is also very quick and easy, as you can set up your plan either by phone or on the internet. The actual process is likely to take around 15-60 minutes, but if you owe more than $50,000, you have to pay by direct debit and payroll deduction, which will take 4-6 weeks to set up. In case your balance is more than $100,000, expect the process to take longer. In such a situation, it is advisable to contact a tax consultant.

Currently Not Collectible

When someone is facing temporary hardship and is unable to pay taxes, they can request currently not collectible status. To take advantage of this tax debt relief method, you must provide detailed financial information which proves that you are unable to pay. Before granting you the status, the IRS will attempt to find assets that you don’t need to pay ongoing living expenses and document your income and expenses to see whether you could pay in installments.

In general, the quickest way to start this type of request is by phone, but it will still take months to complete due to the necessary paperwork involved. The IRS will consider your request within 1-2 months but may ask you for additional documentation, thus prolonging the process. Remember that CNC status is temporary and you will still be expected to pay this tax in the future.
 

Offer in Compromise

To have a part of your tax debt written off, you can submit an offer in compromise, which will allow you to pay less than the original balance. You can use this option if you don’t think your situation will improve significantly in the future and paying the full amount would cause you financial hardship. Like CNC status, the IRS will need to see proof of your income, expenses, assets, and inability to pay.

You will usually be asked to pay a fee, a down payment, and to forfeit your next tax refund. Only around 2 out of every 5 OIC applications get approved, so consult an experienced professional with a good track record before getting started. OIC takes a lot longer than the other possibilities, generally around 7-12 months, because the IRS needs to see your month-to-month income and expenses.

Innocent Spouse Relief

If your spouse or former spouse didn’t file your joint taxes correctly, omitted income, or falsely applied for tax relief, you might be able to claim innocent spouse relief. You must state that you didn’t know about this issue at the time you signed the return. This is a tricky situation and you have to sign the relevant form under penalties of perjury, so you must be very confident about your situation before getting started.

Once you file the form, it can take up to 6 months until a final decision is made. During this time, the IRS will request your tax information and contact your spouse. In many cases, the process will be completed sooner, at around 11 weeks if you file electronically and 14 weeks if you send your form by mail.

There are several tax debt relief options available to you if you struggle to pay your outstanding balance. While some of them are quick and easy, others will require a lot of paperwork and delicate handling. To make sure you get the best deal possible, call Geaux Tax Resolution in Lafayette, LA, today. Our experienced, professional team is here to answer all of your questions and help you get back on track.