December 13, 2018

Student Loan Workout Should Precede IRS Workout (Usually)

IRS monsterHow should you prioritize your payments when you have both tax debts and student loan debts? According to attorney Shawn Wright, a Pittsburgh, PA lawyer who represents clients in tax matters, student loan workouts and bankruptcy, you should apply for a student loan workout first, and thereafter apply for an offer-in-compromise or installment agreement with the IRS.

As Shawn notes, the IRS’ “Fresh Start Initiative allows taxpayers to include student loan payments as approved expenses in an IRS workout budget. This is a change from prior policy. In other words, when you apply for an IRS settlement, you have to submit a budget. The IRS will only acknowledge reasonable and necessary budget items – anything else will be considered disposable income that you can use to pay the IRS.

As of May 21, 2012, student loan expenses may be included in an IRS settlement budget. Other expenses, like credit card debts and personal loan repayments cannot be claimed at all on an IRS settlement budget. Further, the IRS limits what you can claim as “necessary” in categories such as housing, transportation and utilities. [Read more…]