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Understanding Your Options if You Are Facing Substantial Tax Debt in 2025

January 24, 2025

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If you are facing substantial tax debt in 2025, you will want to take a proactive approach to dealing with the Internal Revenue Service (IRS). The IRS has various options for enforcing taxpayers’ financial obligations, and tax liens, levies, and other collection mechanisms can present significant challenges and hardships. In nearly all cases, high-income and high-net-worth taxpayers will have options available, and working with an experienced Texas tax debt attorney can help to facilitate a best-case outcome.

5 Options for Resolving Substantial Tax Debt with the IRS

There are various options for resolving substantial tax debt with the IRS. While not all options will be available (or desirable) in all cases, the options for resolving high-income and high-net-worth taxpayers’ debts with the IRS generally include:

1. Seeking an Installment Agreement or Offer in Compromise

The IRS has formal procedures for taxpayers to seek both installment agreements (or payment plans) and offers in compromise. Installment agreements allow taxpayers to pay down their tax debt over time, while offers in compromise allow taxpayers to resolve their debt without paying the full amount they owe. In appropriate cases, taxpayers who are in debt to the IRS can combine offers in compromise with payment plans in order to avoid collection as well.

Taxpayers must meet certain eligibility criteria in order to secure installment agreements and offers in compromise; and, for some high-income and high-net-worth taxpayers, participating in these programs may not be an option. In this scenario, negotiating a tax settlement with the IRS could be a viable alternative.

2. Negotiating a Tax Settlement with the IRS

Tax settlements also allow high-income and high-net-worth taxpayers to avoid IRS collection efforts while paying less than the full amount they owe. If you do not have viable grounds to dispute your federal tax debt and do not qualify for a payment plan or offer in compromise, then engaging an experienced Texas tax debt attorney to negotiate a tax settlement with the IRS on your behalf could be your best option.

3. Submitting an Amended Tax Return or Seeking Penalty Relief

Have you overstated your federal tax liability on your returns? If the amount of your tax debt is more than you actually owe, your best option for avoiding IRS collection could be to file an amended return. However, as claiming significantly reduced tax liability is highly likely to trigger scrutiny from the IRS, it will be important to ensure that you have documentation to substantiate your new tax position readily available.

Another option that will be available to some taxpayers is to file for penalty relief. If your federal tax debt includes substantial penalties and you do not have grounds to file an amended return, you may be eligible to reduce your tax debt under one of the IRS’s three penalty relief programs:

  • First-Time Penalty Abatement
  • Penalty Abatement Based on Reasonable Cause
  • Penalty Relief Based on a Statutory Exception

4. Appealing the IRS’ Determination of Your Federal Tax Liability

Of course, if the IRS has incorrectly determined your federal tax liability, you should not have to pay any amount that you do not legally owe. In this scenario, protecting yourself may involve filing an IRS appeal. Federal tax appeals are subject to strict requirements—and you must be prepared to affirmatively demonstrate how the IRS has erred—so experienced legal representation is essential.

5. Submitting a Voluntary Disclosure

Experienced legal representation is also essential if you need to submit a voluntary disclosure. If you are aware that you are behind on your federal tax obligations but haven’t yet faced scrutiny from the IRS, submitting a voluntary disclosure could provide a way for you to come current without facing an audit or investigation. However, there are significant risks involved with this approach, so it is imperative that you speak with a Texas tax debt attorney before moving forward.

These are not necessarily the only options for resolving tax debt with the IRS, and, again, these options won’t necessarily be available in all cases. It is also important to keep in mind that once the IRS initiates an audit or investigation, some of these options may no longer be on the table. As a result, if you have substantial tax debt, a proactive approach is essential, and you will want to discuss your options with an experienced Texas tax debt attorney as soon as possible.

What Not to Do When You Are Behind on Your Federal Tax Obligations

Along with taking a proactive approach to resolving their situation, high-income and high-net-worth taxpayers who owe a substantial amount to the IRS must also be careful to avoid mistakes that could limit their options—and potentially increase their exposure. These mistakes include:

  • Taking a Wait-and-See Approach – When you have substantial tax debt, a proactive approach is essential for maximizing the opportunities you have available and preventing the IRS from initiating collection efforts.
  • Prematurely Sharing Information with the IRS – While you may need to share information with the IRS when seeking a payment plan or offer in compromise—or when submitting a voluntary disclosure—taxpayers must be extremely careful to avoid prematurely sharing information that could potentially lead to enforcement.
  • Making Assumptions About How Best to Move Forward – Given the risks involved with owing a substantial amount of money to the federal government, you should not be making any assumptions in this scenario.

Here, too, these are just examples. Informed decision-making is critical, and taxpayers who have substantial tax debt must act quickly to avoid unnecessary consequences. If you need to know more, we invite you to contact us today.

Request a Confidential Consultation with a Texas Tax Debt Attorney at Brown Tax, P.C.

To request a confidential consultation with a Texas tax debt attorney at Brown Tax, P.C., please call 888-870-0025 or contact us online. If we can help you, we will arrange for you to speak with one of our attorneys in strict confidence as soon as possible.

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