When evaluating which tax debt relief company to use, consider how you want to deal with the IRS. In addition to OIC and payment plan options, most companies provide various other avenues for tax debt forgiveness. Those options include:
Innocent Spouse Relief. Most couples who get married in the United States file a joint tax return with the IRS. While that filing status generally comes with some benefits to the couple, it can also bring on some liability for either individual. Certain cases, such as when a spouse fails to properly report income or claims incorrect deductions or credits, can cause financial harm to the other individual. Innocent spouse relief helps protect an individual from their spouse's mistakes.
Separation of Liability Relief. Most tax debt relief companies can help divorcees deal with the financial sins of the other. In this instance, the IRS allows for "the separate allocation of additional tax owed" between the two individuals. Both parties must either be legally separated from or not living with each other to qualify for this type of relief. Further, you are responsible for the amount of tax allocated to you.
Equitable Relief. When neither Innocent Spouse Relief or Separation of Liability Relief is applicable for anything not properly reported to the IRS on a joint return, you can try to seek Equitable Relief. To be considered for this option, the issue must be attributable to your spouse. According to the IRS, you may also qualify for this option "if the amount of tax reported is correct on your joint return, but the tax wasn't paid with the return."
Currently Not Collectible (CNC). If you are financially unable to repay your tax debt, you may qualify for Currently Not Collectible status. Rather than an absolution of your tax liability, CNC is more of a reprieve from the IRS' collection efforts. Under this agreement, you will stop receiving letters and the phone calls will stop while you get things back under control. To qualify, you must prove your financial hardship to the IRS. You will do that by sharing your financial information with the government, including any savings accounts or other potential assets. Without any assets to repay the debt, the IRS will need to document your average monthly income and living expenses in order to determine if an installment agreement would be better. You may also be required to file a financial statement and potentially prove your income and expenses. Further, the IRS limits your monthly expenses. Any tax refunds will go directly toward paying back your debt, and you will likely get penalized with a federal tax lien if your debt is over $10,000. If you become able to repay your debt, you will lose CNC status. If, however, your financial situation remains the same for 10 years, the IRS will write off your debt.
Federal Tax Lien/Levy Assistance. If you've failed to pay your taxes and ignored the problem for some time, chances are you have been threatened with or been the subject of tax liens or levies. Levies and liens are the federal government's way of ensuring it gets the money owed to them. If you are hit with a tax levy, the IRS can garnish your wages, withdraw funds from your bank accounts, garnish your Social Security and seize your property, though the last option is usually for the most egregious tax dodgers. Tax liens, however, originate from overdue property taxes or failing to pay your taxes. Liens generally affect real estate and personal property, more than your bank account. If you have a tax lien, your credit score will take a hit and your ability to get a loan or refinance your home will be severely hampered, among other issues. Tax debt relief companies negotiate with the IRS to lift levies or liens while you get everything in order.
Penalty Relief. If you can't pay the penalties leveled against you from the IRS, some tax debt relief outfits will work to have those fees reduced or removed. Penalties can be incurred if you fail to file your taxes, don't pay your taxes in a timely manner or don't deposit your taxes before the deadline.
Audit Representation and Tax Preparation. If you or your business are being audited, most tax debt relief companies will provide legal representation. Additionally, some tax debt relief companies offer a tax preparation service aimed at ensuring you do not run afoul with the IRS again.