Income tax relief, also known as income tax debt relief, is any legal short-term or long-term solution offered by individuals or a government income tax agency to settle income tax debt. Income tax debt refers to monies owed to the government tax agency, such as the Internal Revenue Service (IRS) in the United States, originating from any current or past tax returns. Income tax debt may include income tax owed, combined with any accumulated interest and penalties.
Short-term solutions for income tax relief include borrowing from a family member or a friend; having an income tax relief sale, meaning selling any valuables for cash or liquidating; or taking out a short-term personal loan. If these options are not available, income tax relief laws may allow the government tax agency to offer a number of long-term solutions. In the US, under income tax relief law, taxpayers can apply for an Offer in Compromise (OIC) or an IRS installment agreement. Tax relief law also allows for a permanent solution to income tax debt called "tax bankruptcy."
An OIC can provide tax relief for taxpayers who cannot pay their tax debt in full or if an installment agreement is not an option. An Offer in Compromise is an agreement between the IRS and a taxpayer that resolves the taxpayer’s debt. There is a fee for filing, but in some cases it may be waived. With an OIC, the IRS can choose to settle the taxpayers debt by accepting less than the full payment if there is doubt as to liability, doubt as to collectibility, if the collection of the tax would create an economic hardship, or if it would be unfair and inequitable.
An IRS installment agreement, also called a payment option, payment plan, or payment agreement, is an agreement between the IRS and the taxpayer to make payments on taxes owed. Taxpayers will be charged a fee to start the installment agreement as well as interest and penalties. Interest and penalties may be minimized of the taxpayer is able to resolve his tax debt immediately or in a few of months. Taxpayers who fall under a certain threshold in combined tax, penalties, and interest are eligible to use the Internal Revenue Services’ Online Payment Agreement (OPA).
In the case of tax bankruptcy, taxpayers must contact a tax attorney to assist with the process. In general, if taxes are old enough, they are dischargeable under the Chapter 7 bankruptcy code.
