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What options do you have if you owe the IRS a debt you cannot pay?

On Behalf of | Feb 9, 2022 | Back Taxes or Tax Debt, Tax Law |

Sometimes people forget to file their tax returns. As a result, they start receiving notices from the International Revenue Service (IRS). In this case, the IRS starts sending penalty assessments, bills and letters of enforced collection to taxpayers. The worst you can do is keep ignoring their warnings because the IRS might force you to pay using tools like federal wage garnishments, tax liens, or levies. They can even continue imposing penalties and interests on top of the above measures. However, there might be a way out depending on how much you owe them. 

Pay the debt in installments  

The good news is that the IRS allows taxpayers to pay their taxes in installments. You can request a time extension or monthly installments depending on your situation. It is even possible to enroll in the IRS hardship program if you are in a financial crisis. All these arrangements are better than ignoring your tax bill. Here are the options you have if you are unable to pay your tax bill:

  • Offer in Compromise (OIC): To qualify for this offer, the IRS must ascertain that you cannot clear your tax bill at once. The IRS then requires you to make partial payments on a single or regular basis after reaching an agreement with them. 
  • Installment Agreements (IA): This option is available to people with an IRS debt of less than 50,000 and is payable in 72 months. To qualify for an IA, you must have updated all your file returns first. Then you have to disclose all your assets and funds to the IRS to prove you are unable to pay your tax. Finally, you must convince the IRS that you cannot borrow the amount you owe them and that you lack adequate retirement money to pay the debt. 
  • Innocent Spouse Relief: You can also get an Innocent Spouse Relief if you have erroneously filed a joint return without knowing. The relief is valid if you make an application within two years after the IRS has begun collecting tax. 
  • Currently Not Collectible (CNC): To qualify for CNC, the IRS must ascertain that you are unable to make any tax payments whatsoever. In this case, the IRS cannot levy or garnish your accounts. CNC also helps you avoid installment agreements. Usually, taxpayers in this situation have little or no money to pay tax after spending money on essentials.

What if you owe them $1000,000 and above? 

In a scenario where you owe the IRS more than $1000,000 and are not in any payment agreement with them, they can assign you a field collection officer. In such situations, you have no option but to set up a payment plan with the IRS. They may even liquidate your assets in extreme cases.