IRS Debt Interest and Penalties: 3 Ways to Make Your Debt Disappear

One day at a time…You have a debt to the IRS and you’ve been in a monthly payment plan for a couple of years. You’re paying what you’re able, and your tax refunds from the last couple of years have been applied to your debt. However your IRS debt doesn’t seem to be going down and you are understandably frustrated.

Adding on and on…The problem is that the IRS is constantly adding on interest and penalties to your debt. Your debt is accruing about 2% per month in combined interest and penalties for a total of 24-25% added on to your debt each year. For example if you owe $10,000, after one year your debt increases to $12,400. And the best part is that the IRS applies any payments or tax return refunds to the interest and penalties first! That can cause the principle of the debt to go down slowly.

In the above example you would have to pay $200 per month just to cover the interest and penalties. What can you do? Here are three possible solutions.

1.If you’re able to get a bank loan that can be a great help. Even if your credit is in trouble a bank loan’s interest would be far lower than the IRS, and you would see an actual decrease in the debt. Also if you can pay off the debt with a bank loan, then you’ll actually get back your tax refunds each year.

2.But what if you can’t get a loan? You can get the assistance of a tax attorney or CPA to negotiate with the IRS on your behalf. Tax attorneys and CPAs have the ability to work directly with the IRS, and they can work to make sure your payments are going to the actual debt principle, and not to the interest and penalties. Since the principle will actually be lowered, then the interest and penalties will be less.

3.However hiring a tax professional may not be an option either. Worst case scenario is that you may have to wait for the Statute of Limitations to run out on your debt. What’s the Statute of Limitations? The IRS has a limited time of 10 years to collect on a debt. After those 10 years the debt is released, and you don’t owe any further money. However the Statute can be extended under several factors that you can read about in my article, “IRS Tax Debt and the Statute of Limitations: 10 is the Magic Number.”

Take a load off…These are the best solutions to not only get your actual debt reduced, but they can give you a feeling of hope that you can get out of your IRS debt trouble.

Now you have the smoking gun…Use it!