Now that tax time is over, let's outline concrete ways you can reduce your IRS tax debt or get the "tax relief" so widely advertised:
1. Offer in Compromise (OIC). The OIC isn't for everybody. You'll have to show that you can't pay back what you owe before your final debt expires at your current rate of income. If you just filed 2017 and owe taxes, well, you just started a ten year statute clock and will have to demonstrate you can't pay back your 2017 and older debt in ten years. To get an OIC, you also will need to show that you can't liquidate your assets to pay what you owe. Beware of tax relief companies who promise OICs, they're not easy to get. About 40% of our IRS indebted clients get OIC's.
2. Collection statute expiration date (CSED). With a more dormant IRS, the CSED is our guiding light for our clients. Running out the CSED is the biggest victory you can get, i.e., having your tax debt expire the 10 years after it was assessed. If you have older tax debt, you, your accountant or tax attorney should find out the CSED and then negotiate resolving your tax debt with a close eye to it. Also remember your CSEDS are extended by doing OICs, Bankruptcies, Proposing Payment Plans and Defaulting your Payment Plan.
3. Penalty waiver. The IRS usually will waive penalties for one tax year if you have sorted out your tax compliance issues (filing and paying on time). Recently, the IRS has been very strict at approving penalty waivers beyond that one year "freebie" even if the story that had you fall behind is horrifying. To win these cases, you will have to "appeal" your rejected waiver. You can have success with appeals, but its a year-long process. The culture of penalty abatement acceptance seems to change with Presidential Administrations - perhaps there will be more approvals with a change of Administration? Who knows - but in our 30 years, penalty abatement has never been tougher.
4. Bankruptcy Chapter 7 or 13. Always verify this data with your local bankruptcy attorney, but Chapter 7 should wipe out all debt and tax debt that is three years or older as long as it has been filed two years ago (at least). Chapter 7 does NOT discharge taxes that the IRS filed for you: you have to have filed the returns. Chapter 13, on the other hand, is a payment plan where you pay all tax debt and other tax debt for three to five years. However, when the three to five years is up, the remaining debt that was unpaid goes away.