Here will discuss tax relief in the 4th quarter of 2021 for the IRS and what you should know about your options if you have a tax debt. You can either watch the video below or keep reading on for the written version.
Two less common options are Injured Spouse and Innocent Spouse and we are not covering those in this post, but well link to more information below.
Some of you might also just be paying off your tax debt in full in which case they should skip to our first-time penalty abatement guide.
Offer In Compromise is often the best option if you qualify
For Offer In Compromise, you are trying to settle the tax debt for less than the amount owed. It’s not going to be a percentage of the debt owed like you might hear in some advertisements. It’s based on a calculation of your available income and assets. It’s not uncommon for someone that owes hundreds of thousands to settle for $100. But if you do not owe a whole lot and are making good money, you might not qualify.
Our experts are great at going through the numbers to see if you have a good chance when you call us. If you are doing your case alone, make sure to check out our Offer In Compromise acceptance guide.
Offer In Compromise in 2021
In 2021, an Offer In Compromise might be better for some individuals. If the Coronavirus caused you to lose your job or decimated your business, your odds at acceptance are much better.
If you just were doing badly during the shutdowns and now are no longer struggling, your odds are probably about the same as before the pandemic.
In any instance, if you qualify, Offer In Compromise is often the best option for most people that owe taxes.
Currently Not Collectible status is sometimes the best you can get, and sometimes is better than an Offer In Compromise
Currently Not Collectible status is basically a payment plan for $0 per month.
So how have things changed for 2021?
For existing Currently Not Collectible cases were seeing more people get kicked out of Currently Not Collectible status and being required to resubmit another request sooner than normal. For those trying to get into a status, it’s easier now.
If your job was lost or your business is still crushed due to coronavirus, Currently Not Collectible status is probably an option for you. However, if you do not have significant assets, good chance if you qualify for this you also could get an Offer In Compromise, which is a better result.
With Currently Not Collectible, the debt sits on your record, while with Offer In Compromise, it gets wiped out.
There are situations where Currently Not Collectible is still better to do even when you do qualify for an Offer In Compromise. A common one is where your tax debts are close to expiring. By filing an Offer you would extend the IRS collection period, so in these cases, many are better off doing Currently Not Collectible and letting the debt drop off the system.
We see a lot of individuals, tax relief companies, and other tax law firms handle these incorrectly. An example would be the taxpayer has 10 months for their tax debt to expire and they are self-employed.
The tax relief company submits an Offer and a year has passed because self-employed offers take longer. The tax debt would have already expired if they did Currently Not Collectible instead. The client’s time and money get wasted.
Payment Plan with a Penalty Abatement
If you do not qualify for an Offer In Compromise or Currently Not Collectible status and cant pay off the tax debt all at once, a payment plan is probably going to be your form of tax relief. Plus a penalty abatement can save you some money if you qualify.
Coronavirus hasn’t really affected this type of tax relief because if you just cant pay you probably aren’t doing a payment plan anyway. The IRS has massively simplified payment plans over the last few years. Basically, any amount under $250,000 qualifies for one of their much simpler payment plans.
There’s also the short-term payment plan which gives you 180 days to pay off the debt. You can apply online or by phone and well link to that below. Then there are long-term payment plans if you need more time to pay. If the total debt is under $50,000, you can set up the payment plan online or on the phone.
If the debt is $50,000 or over, you can apply by phone, mail, or in person. Click here to set up an IRS payment plan for a balance under $50,000.
Penalty Abatements – First Time and Reasonable Cause
The second part of tax relief for those with a payment plan is penalty abatement. A penalty abatement is basically the IRS knocking off the penalties on your tax debt.
There are two main types of penalty abatements: one is a first-time abatement based on prior compliance and the other is a penalty abatement based on reasonable cause.
The first time abatement is easy to get. The IRS looks at the first tax year you owe in a series of years. If there are no prior penalties showing as existed on the three years prior to the first year you owed, they’ll take off failure to file and failure to pay penalties just by asking. Sometimes they cannot do it over the phone and require you to mail in the request. Most people qualify for this type of penalty abatement. See our guide here on first-time penalty abatements.
The second type of penalty abatement is one based on reasonable cause. Something happened that reasonably caused you to not pay the tax debt. Most of these get rejected and you need a good reason. I tell people do not count on this one to go through, but it’s worth a shot if you have good reasons.
Concluding our overview of tax relief for 2021
Selecting the best tax relief option in 2021 can be tough if you don’t know where to start. You can check out our free tax relief help guide if you are doing your own case. If you are looking for help from expert tax attorneys, schedule a consultation by calling our law firm at (888) 515-4829 or clicking here and filling out our intake form.