Tax Debt Consolidation

There is no shame in getting behind on your taxes with the IRS. Surprise medical expenses and family emergencies happen, and you can find yourself in over your head with back tax debt before you know it. Have you ever wondered if you can consolidate all of your debt like people consolidate all of their credit card debt? Well, you can—it just doesn’t work the same way as credit card debt consolidation. If ignored, unpaid taxes can allow the IRS to seize assets, garnish your wages, and put liens on your home or property. If you’re struggling with multiple bills for back taxes from the IRS, you’re not alone. In 2017, there were 937,514 taxpayers with delinquent accounts.


Can You Negotiate Your Tax Debt to the IRS?

Americans fail to pay $458 billion a year in taxes, and the IRS wants to get their money back in any way possible. Your tax debt can be negotiated with the IRS, however, it’s rarely for “pennies on the dollar”. One way to have your IRS debt consolidated is to get an offer in compromise. This is an agreement between the taxpayer and the IRS to settle the taxpayer’s tax liabilities for less than the amount owed. The IRS is only likely to agree to a reduced amount if there is no way you can pay back the money you owe now or in the foreseeable future. Unless paying back the IRS would cause economic hardship, there is doubt as to the amount owed, or you aren’t able to pay the full amount in a reasonable timeframe, it’s unlikely the IRS will grant you an offer in compromise.


Here are the qualifications for an offer in compromise:

  • The IRS has doubts that it will be able to collect what they are owed in the foreseeable future. The IRS calls this “doubt as to collectability” and it’s usually tied to a business or individual that has lost all revenue and isn’t likely to ever turn enough profit to pay its back taxes.
  • Due to exceptional circumstances, the payment of your full tax bill would cause an “economic hardship” or would be “inequitable” or “unfair”. The IRS isn’t going to force you or your business to turn over money that you don’t have or would put you on the street.
  • It’s rare, but the IRS is capable of making mistakes. You may file Form 656-L if you or your business has “doubt as to liability”. If the IRS didn’t process your taxes correctly and the amount they believe you owe is incorrect, they will reduce the amount or eliminate it entirely depending on your circumstances.

If you plan on negotiating with the IRS about reducing the amount of taxes you owe or obtaining tax consolidation, the best thing to do is hire a seasoned and professional tax attorney or CPA. Getting an offer in compromise from the IRS requires a lot of time, paperwork, and correspondence. Speaking with a professional (before applying) can tell you whether you could qualify before you take the time to go through the process.

The Nature of Unpaid Tax Debt

Before you can proceed with understanding tax consolidation, it’s important to know that each tax debt you accumulate with the IRS is a balance that’s attached to a specific year. The debt from each year generates its own penalties and interest (meaning the IRS doesn’t consolidate all of your debt for you as it builds up over the years). Fortunately, the IRS will allow you to consolidate back taxes for multiple years of delinquency.

Tax Debt Consolidation Solution

If you don’t think the IRS will agree to an offer in compromise, installment agreements are a great alternative and the most common way to achieve tax consolidation with the IRS. Rather than paying back each of your tax debts separately, the IRS will allow you to make one monthly payment versus paying a single lump sum. Depending on the size of your debt, these payments may stretch out as long as long as 6 years. Even though penalties and interest will continue to accrue for the lifespan of your debt, you won’t have to pay several different installment agreements at once. The IRS will group all of your tax debts for several years into one installment agreement, providing the convenience of one monthly tax bill.

It’s important to stay on the lookout for any potential new tax liabilities after you consolidate. This process doesn’t put the rest of your tax obligations on hold—you will still be required to file new taxes for each fiscal year proceeding your IRS tax consolidation. If you fail to pay new taxes, it can jeopardize your existing agreement with the IRS. For example, if you or your business has an installment agreement, and you become delinquent on the subsequent year’s tax bill, your IRS installment plan will become invalid. This could force you to start the entire process over—only the IRS may not be as flexible or willing to work with you the second time around. One way to avoid this is to hire a professional tax representative or accountant to ensure that you aren’t making any mistakes in your IRS consolidation.

Are you or your business struggling with back taxes and looking for a way to consolidate? Community Tax has a highly qualified and experienced team of experts that are standing by to assist you with all of your tax needs. Since 2010, Community Tax has helped thousands of clients resolve their tax debt and provided numerous tax-related services. If you are in need of tax debt consolidation, don’t hesitate to call Community Tax today 888.684.4792.