Tax debt can quickly get overwhelming, especially when you and your family are barely getting by as it is. If you have some income that you can pay toward your tax debt, you may be able to work out an installment plan to pay back the IRS.
If you have no extra income, however, an installment plan probably is not a feasible option for you. Unfortunately, the Internal Revenue Service (IRS) usually does not wait around for long to see if you pay off your tax obligations.
The fact is that the IRS can take swift and harsh actions to collect unpaid taxes without the process of suing you or getting a judgment against you in court. The IRS can place liens on your property, seize your property through a levy, and garnish your wages until you have satisfied your unpaid taxes.
If you truly are unable to pay your tax debt, you may qualify for an IRS hardship program that is available in some circumstances for those with tax debt hardships in Maryland. An experienced tax resolution lawyer can help assess your eligibility for the program and work with the IRS to get you enrolled.
When Tax Debts Are Currently Not Collectible
The IRS does offer special financial hardship programs for qualified individuals who owe federal taxes. When individuals who are eligible for this program, the IRS will designate their federal tax debts as “currently not collectible,” at least on a temporary basis. See 26 U.S.C. § 6343. The IRS may allow individuals to participate in this program after analyzing their existing income and expenses according to these standards:
- The individuals own no significant assets
- Collection efforts would present a hardship and make it impossible for these individuals to meet their basic living expenses
If individuals with outstanding tax obligations meet these criteria, then the IRS may agree to forego collection efforts, at least temporarily. Being accepted into this program allows taxpayers to concentrate their efforts on providing for themselves and their families without the IRS trying to seize their assets and garnish their wages in order to collect their unpaid taxes.
There also is a statute of limitations on tax collections; as a general rule, the IRS must collect unpaid taxes within ten years of them being assessed. Having tax debts labeled as “currently not collectible” does not toll or stop the statute of limitations from running. Therefore, this program could make it possible for individuals to ultimately not pay their tax bills at all, at least once the statute of limitations has expired.
Potential Consequences of Tax Debt Hardship
As is the case with any form of relief, there are drawbacks for taxpayers who have their tax debts designated as temporarily uncollectible. First, the IRS will continue to assess interest and penalties on any unpaid tax debt, even though it is not currently pursuing collection of the debt. This means that taxpayers’ unpaid tax obligation will be even greater when IRS opts to again begin collecting the tax debt.
Next, the IRS may place liens on individuals’ property in order to secure its interest in the property. This means that if individuals attempt to sell the property, any proceeds would apply first to the outstanding tax debt. Individuals who have tax liens placed on their property also may see a corresponding drop in their credit ratings.
Finally, the IRS generally still expects that individuals whose tax debts are “currently not collectible” file annual tax returns. If these individuals are entitled to a tax refund, the IRS will apply that tax refund to the individuals’ unpaid tax debt.
Contact a Lawyer about Maryland Tax Debt Hardships for Advice
A skilled and knowledge Maryland tax attorney could assess your situation and help determine whether you meet the eligibility criteria for the IRS financial hardship program.
You also must decide whether the benefits of having your outstanding tax obligations marked uncollectible on a temporary basis outweigh its potential drawbacks. Address your tax debt hardships in Maryland today, and potentially avoid some of the harsh collections tactics used by the IRS.
