If you feel you can afford to make payments to the IRS, then an installment plan with the IRS may be your best option. However, the IRS may require you to fill out forms or respond to questions over the phone regarding the details of your financial situation and in some cases they can use this information against you as a way of collecting more money- especially if you have assets or substantial income, so you may want to consult a tax professional before doing so. Additionally, during the plan the IRS will take any refunds and apply them towards your balance.
Partial Payment Installment Plan (PPIA)
If you wish to negotiate a PPIA you will need to submit financials along with a hardship letter explaining your situation and outlining why you should be granted a reduced payment. You may want to have your paperwork reviewed by one of our professionals prior to submission. If your request is granted you will make installment payments as you would in the installment plan but at a reduced amount.
Offer In Compromise (OIC)
Offer in compromise is also known as the “pennies on the dollar program” which is heavily advertised on television and radio. There are three scenarios under which the IRS accepts OIC requests:
Doubt as to Liability: The amount of tax assessed is incorrect
Doubt as to Collectability: This is the category most often used. The person filing under this category must demonstrate that he or she will likely never be able to pay the full tax obligation due to financial hardship or some other compelling reason.
Effective Tax Administration: Requests for relief under this category do not dispute the amount of the tax. Rather, the claim is that collecting the tax would create an injustice. Elderly or disabled taxpayers often use this category.
To request an Offer in Compromise, file Form 656: Offer in Compromise and Form 656-A: Income Certification for Offer in Compromise Application Fee and Payment. OIC is the most difficult IRS program to get accepted and you may want to consider hiring a professional to improve your chances if you feel that you may qualify.
Currently Non Collectible Status (CNS)
If you feel that you cannot make payments towards what you owe to the IRS due to financial hardship, you may request that your account be placed on hold due to financial hardship. You will need to provide detailed financial information and if your request is granted, you will still owe taxes to the IRS, but they will not bother you in terms of collections action. Your circumstances may be re-evaluated later in the future depending on your situation. Becoming non-compliant or incurring more tax debt are triggers for the IRS re-evaluating and lifting the stay of collections.
Tax Penalty and Fee Abatement
If you feel you can pay your tax obligation in full or in installments, but simply need a break on the penalties and fees then the Penalty and Fee abatement program may provide some relief. You may request to have eligible penalties and fees removed by providing a letter outlining a compelling reason for requesting the abatement, hiring a tax professional or filing out IRS Form 843.
Making Use of The Statute of Limitations
In some situations you may be able to wait out your tax debt and have it erased from your record. The statute of limitations on federal tax debt is usually 10 years but calculating your expiration dates can be difficult. The “clock” doesn’t start to run until the IRS has assessed your debt and there is a tolling period if you file bankruptcy or submit for requests for certain IRS settlement programs. If you are considering utilizing this approach you should consult a tax professional to get accurate expiration dates and a game plan of what to do in the meantime.