Judicial Ways to Fight Back – The IRS Survival Guide – Chapter 7

Less than 1% of IRS disputes ever go to trial — but knowing your judicial options gives you real leverage in negotiations, even if you never set foot in a courtroom.

Most people assume that once the IRS says you owe money, the fight is over. It isn’t. This post covers Chapter 7 of The IRS Survival Guide: your three options for taking an IRS dispute to court, and the payment solutions available when the courts have ruled and you still can’t pay in full.

Your three judicial options

If you’ve exhausted administrative remedies — like a manager conference or IRS Appeals — and still haven’t reached a resolution, federal law gives you three paths into court.

When you owe money but can’t pay in full

Let’s say the courts confirm you owe the tax. You still have meaningful options.

A word on Offer in Compromise

You’ve probably heard the ads: “Settle your tax debt for pennies on the dollar!” The truth is more nuanced. An OIC is a highly formulaic, structured process, and not a free-form negotiation. You must fully disclose all assets, debts, income, and expenses. The IRS runs its own calculation, and approval is only granted when the offered amount meets that figure.

I always evaluate this option for clients, but in practice very few people meet the strict eligibility criteria. Get a professional evaluation before pursuing it.

Can you discharge tax debt in bankruptcy?

Sometimes — but only if specific timing requirements are met. Generally, for federal income taxes to be dischargeable:

• The tax return must have been due at least three years ago
• The return must have been filed at least two years ago
• The tax must have been assessed at least 240 days ago

Bankruptcy is typically a last resort, and the interaction between bankruptcy and tax law is complex. Consult both a tax attorney and a bankruptcy attorney before going this route.