Is Personal Bankruptcy the Only Way to Recover from Tax Debts?

A miscalculation or mistake on a person’s taxes may not be discovered for several years after the annual filing is complete. When a New York resident’s taxes are reviewed by the Internal Revenue Service, he may later be contacted by the federal agency about potential problems with what he reported. Depending upon what the IRS finds, that person may become liable for significant back taxes based upon errors in prior years’ tax returns.

Tax debt is just one of the financial challenges that push people toward filing for bankruptcy. While bankruptcy is a legal way for a person to take control of his financial obligations and to pay his creditors, people facing tax debt do have other options. The IRS offers two other methods of dealing with tax debts that do not involve bankruptcy.

According to the IRS, tax debts may be addressed through a payment plan. A payment plan spreads out the total amount of a person’s outstanding tax liability and organizes it into periodic payments. There are limits on the total amount of debt and penalties that a person may owe to qualify for the payment plan and in some cases a person may set up payments to be paid through an online interface.

Additionally, tax debts may be handled with an offer in compromise. An offer in compromise is sometimes a good solution if a person cannot afford to pay off his debt or if paying off his debt would place a hardship upon him. An offer in compromise involves a person with tax debt paying less than he owes to the IRS in exchange for the agency accepting the reduced amount as satisfaction of the whole debt.

Personal bankruptcy is just one way that a person can manage his tax debts. Payment plans and offers in compromise give people different ways of handling this sometimes burdensome financial obligation. More information on this topic can be acquired through individual consultations with bankruptcy attorneys.

Source: Q&A