What Are the Different Types of Tax Resolution Available to Individual Taxpayers?

If you owe back taxes and related penalties and interest, you may be interested in a tax resolution strategy. Learn your options and work with a tax professional to find the answer that's right for you.

Miss one tax payment or filing deadline and your back tax debt can snowball. Not only will the original tax balance you failed to pay accrue interest, you'll also be fined for both late filing and late payment. For people already struggling to pay off their initial tax amount, accumulating back taxes can be overwhelming and even crippling.

If you're dealing with unpaid back taxes and want a way out, your first step is to secure professional help. An accountant, tax attorney, or enrolled agent can advise you on your repayment options and negotiate an appropriate tax settlement with the IRS on your behalf. Not every tax resolution strategy is right or even available for every scenario, so it's always a good idea to be aware of the various settlements out there.

Depending on your total debt amount and the reasons you failed to pay the taxes you owed, your CPA, tax attorney, or enrolled agent might recommend you petition for:

• Installment agreement: Many people are unable to pay off their back taxes in one lump sum. Dividing the total amount into monthly payments spread out over a period of time can make that once-intimidating debt more manageable. If you are confident you could repay what you owe if you only had smaller payments, then ask your tax resolution professional about negotiating an installment agreement with the IRS.

• Offer in compromise: If you owe more in back taxes than you're likely to be able to pay off within a reasonable amount of time, you may be eligible for an offer in compromise. With this tax settlement, the IRS will forgive a portion of your tax debt in exchange for assurance that you will pay the balance; the idea is that getting something from you is better than getting nothing. Because offers in compromise involve a substantial debt reduction, they're not easy to obtain. You'll need to prove that full payment would lead to financial ruin for you, or that you're not actually liable for the stated debt amount.

• Penalty abatement: If you have a valid and verifiable reason for having missed the payment or filing deadline, you may be eligible for penalty abatement. Acceptable reasons include a death in the family, a lengthy illness or incarceration, and a disaster at home that destroyed your financial records. Note that with penalty abatement, you'll still owe the original tax balance you failed to pay.

• Removal of wage garnishment, liens, and levies: The IRS goes to great lengths to collect what it is owed when you're seriously delinquent on your taxes. They might impose wage garnishment, taking a portion of your monthly paycheck to put toward the debt. They might also place a lien or levy on your property and bank accounts as security against the debt. A tax attorney can help you petition to have these damaging measures lifted and find an alternative repayment strategy.

It's almost impossible to secure any of these tax settlements without professional assistance. Tax professionals and accountants know the ins and outs of tax law, and know how to present your case to the IRS to garner the best possible result for you. When your financial security is at risk, it's vital to take every measure available to you to get back on track. Once your back tax debt is repaid, you can move forward into a more stable future.

Aglaia Rara is a certified public accountant and a senior Internet marketing strategist for SEO firm Prospect Genius.