How to Get Help With Your IRS Tax Debt

When a taxpayer owes money to the Internal Revenue Service (IRS), it is known as tax debt. This can result from underreporting income, calculation errors, or failing to file a return. The initial realization of tax debt often comes with official notices detailing the amount owed plus accrued penalties and interest. The IRS has established several programs designed to help individuals manage and settle their outstanding liabilities, acknowledging that taxpayers can face financial difficulties.

Understanding Your Tax Debt Situation

Before addressing your tax debt, you must understand what you owe by obtaining your official tax records from the IRS. These records provide a detailed history of your account, including the tax years for which you have a balance, the original tax liability, and any added penalties and interest. This information is fundamental to creating a resolution strategy.

The most direct way to get this information is by requesting a tax transcript using the “Get Transcript” tool on the IRS website, which provides immediate access after verification. Alternatively, you can submit Form 4506-T, Request for Transcript of Tax Return, by mail or fax. Once you have your transcript, review it carefully to confirm the total amount of your debt and match the information with your own records and any notices you have received.

IRS Resolution Programs

The IRS offers several programs to help taxpayers resolve their tax liabilities, designed to accommodate different financial situations. Each program has specific eligibility criteria and application processes.

Installment Agreement

An Installment Agreement (IA) allows taxpayers to make monthly payments over an extended period. This option is for individuals who cannot pay their debt in full immediately but can make consistent payments. The IRS offers short-term plans up to 180 days and long-term agreements that can last for years. To apply online for a short-term plan, the total balance must be under $100,000. For a long-term agreement, the online application threshold is a balance of $50,000 or less.

These payment plans do not stop penalties and interest from accruing on the unpaid balance, but they do prevent more severe collection actions like wage or bank levies. To maintain the agreement, you must make all monthly payments on time and stay current with all future tax filing and payment obligations.

Offer in Compromise

An Offer in Compromise (OIC) is an agreement that settles a tax liability for less than the amount originally owed. This program is for taxpayers facing significant financial difficulty, and the IRS accepts an OIC only if the offer is the most it can reasonably expect to collect. The agency evaluates an individual’s ability to pay by reviewing their income, expenses, assets, and future earning potential.

The IRS considers OICs under specific circumstances, primarily “Doubt as to Collectibility,” where a taxpayer’s assets and income make it unlikely they could ever pay the full amount. Other grounds include “Doubt as to Liability,” where a genuine dispute exists over the tax owed, and “Effective Tax Administration,” for cases where collection would cause economic hardship.

Currently Not Collectible Status

For taxpayers experiencing severe financial hardship, the IRS may grant Currently Not Collectible (CNC) status. This is a temporary suspension of collection activities, meaning the IRS will not attempt to levy bank accounts or garnish wages. CNC is not a permanent solution, as the tax debt remains and continues to accumulate interest and penalties. The IRS will periodically review the taxpayer’s financial situation to see if their ability to pay has improved.

To qualify for CNC status, a taxpayer must demonstrate that their monthly income is insufficient to cover their basic living expenses, which the IRS evaluates using national and local standards. If a taxpayer’s financial condition improves, the IRS can remove the CNC status and resume collection efforts.

Other Relief Options

The IRS offers other forms of relief for specific situations. Penalty Abatement may be available if a taxpayer can show reasonable cause for failing to file or pay on time, such as a serious illness. First-time penalty abatement is also an option for taxpayers with a clean compliance history.

Innocent Spouse Relief is a provision to help a taxpayer who filed a joint return but believes their current or former spouse is solely responsible for the tax debt. The requesting spouse must prove they had no knowledge of the error and that it would be unfair to hold them liable. This relief is complex and requires a detailed application to demonstrate eligibility.

Required Information for IRS Programs

Applying for any IRS resolution program requires a well-documented presentation of your financial situation. The IRS needs to verify your income, assets, and expenses to determine your eligibility and ability to pay. Gathering all necessary documentation before you begin can streamline the process.

Required Documents and Forms

Most resolution programs, particularly an OIC or a request for CNC status, require a complete financial disclosure using a Collection Information Statement (Form 433 series). To complete these forms, you will need to gather specific documents to verify your financial standing.

• For income verification, you will need recent pay stubs for all jobs and profit and loss statements if you are self-employed. You also need documentation for other income sources, such as Social Security or pension distributions.
• For asset information, you must collect current statements from all bank, investment, and retirement accounts. You will also need to determine the fair market value of assets like vehicles and real estate.
• For monthly living expenses, gather recent bills for housing, utilities, transportation, health insurance premiums, and out-of-pocket medical costs.

Once you have this data, you can complete the necessary application forms. The primary form for an Installment Agreement is Form 9465. For an Offer in Compromise, you will need the Form 656 booklet, which includes the main application and the detailed financial statement, Form 433-A (OIC).

The Application Process

After gathering your financial information and completing the forms, you must formally submit your application to the IRS. The submission method and subsequent steps vary depending on the resolution program you are seeking.

Submission Methods

For an Installment Agreement, you can often apply online through the IRS Online Payment Agreement (OPA) tool, which is the fastest method for those who qualify. If you do not qualify for the online tool, you can mail the completed Form 9465 to the address specified in its instructions.

An Offer in Compromise can be submitted online through the IRS’s portal or by mail. The Form 656 booklet provides the correct mailing addresses based on your state of residence. Your OIC submission must include the completed forms, all supporting financial documentation, the application fee, and an initial payment, unless you qualify for a low-income waiver.

What to Expect After Submission

After the IRS receives your application, it will send a letter acknowledging receipt. Processing times can vary; an online installment agreement may be approved almost instantly, while an OIC review can take from 6 to 24 months. During this time, you must continue making any required payments and stay current on all tax obligations.

For more complex cases like an OIC, the IRS may assign your case to a revenue officer or an offer specialist for review. This individual may contact you to request additional information or clarification. Responding promptly and completely to any such requests is necessary to keep your application moving forward.

Working with Tax Professionals

While you can navigate the resolution process on your own, many people choose to seek assistance from a qualified tax professional. These experts can provide guidance, handle communications with the IRS, and help formulate an effective strategy.

Types of Tax Professionals

Several professionals are credentialed to represent taxpayers before the IRS. Enrolled Agents (EAs) are tax specialists who have passed a comprehensive IRS test. Certified Public Accountants (CPAs) are licensed at the state level with broad expertise in accounting and tax. Tax Attorneys are lawyers who specialize in tax law and can provide legal representation in disputes, including in U.S. Tax Court. Each of these professionals is authorized to represent you before the IRS.

What a Professional Can Do

A tax professional begins with an analysis of your financial and tax situation to help you determine the most appropriate resolution program. They will then prepare and submit all necessary forms and documentation to the IRS. A primary service they provide is direct communication with the IRS, which can alleviate the stress of dealing with the agency.

Professionals can also advocate on your behalf, negotiating the terms of an agreement or offer. If the IRS initially rejects your application, they can help you prepare and file an appeal. Their experience with IRS procedures and knowledge of the tax code can be a significant advantage.

Choosing a Reputable Professional

When selecting a representative, it is important to perform due diligence. You can verify the credentials of EAs, CPAs, and attorneys through the IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications. Be cautious of firms that make aggressive promises, such as guaranteeing they can settle your debt for “pennies on the dollar,” as the final decision always rests with the IRS.

Before engaging a professional, ask for a clear explanation of their fees and request a written engagement letter that outlines the scope of services. Seeking referrals from trusted sources or checking reviews can also be helpful. Choosing a qualified and ethical professional ensures you have a knowledgeable advocate working to resolve your tax debt.