Being asset-rich but cash-poor can be particularly problematic if you are facing a high tax debt you are struggling to pay. You can, however, be strategic in how you approach this challenge, especially with respect to your assets.
Common Solution: Installment Agreement
In most asset-rich/cash-poor cases, the negotiation with the IRS will be on how the payment plan is structured, rather than reducing the debt. An installment agreement is commonly set up, with the monthly amount usually based on income rather than net worth. In cases where income is limited, the IRS may agree to a partial-pay installment agreement with payments that will total less than the debt owed by the time the ten-year limit for the IRS to collect on a debt expires.
Protecting Your Assets
You may be able to protect your assets against liquidation if you can show that selling them would trigger additional taxes or losses, or that it would be difficult to convert any assets to cash, or that they are not worth the stated value. As with any interactions with the IRS, it is crucial to provide detailed, credible documentation. However, if you do have a lot of equity in real estate holdings, be prepared to access some of the value for your tax debt, possibly by refinancing or taking an equity loan.
While the core tax itself is the primary concern, don’t overlook opportunities to reduce your total liability by seeking reduction or elimination—abatement—of any penalties and reduction in the interest rate. Requesting penalty abatement or interest reduction is more likely to be successful if this is the first time you are struggling to pay a tax debt.
Highland Tax Group and Your Tax Debt Strategy
Highland Tax Group has advised many clients with high tax debt and limited funds on the best strategy for protecting their assets. Experienced tax professionals will review your case and offer solutions specific to your needs and goals. Contact us today to begin the process and ease your stress.