How to Get Rid of Tax Debt: Official IRS Options

Facing a tax debt can be stressful, but the Internal Revenue Service (IRS) provides several official programs to help taxpayers resolve their federal tax liabilities. The agency is often willing to work with taxpayers who are proactive about their situation. This guide provides a clear overview of the resolution options available to bring your account back into good standing and address tax debt directly with the IRS.

Confirming Your Total Tax Debt

Before exploring resolution options, you must determine the precise amount of your tax liability. The most reliable method is to obtain an official tax transcript from the IRS. You can request this document online through the “Get Transcript” tool or by mailing Form 4506-T, Request for Transcript of Tax Return. The “Account Transcript” is the most useful, as it details tax assessments, penalties, and interest for a specific tax year.

Your Account Transcript provides a detailed history, showing the original tax assessed, payments made, and any applied penalties, such as for failure-to-file or failure-to-pay. The transcript also shows the interest that has accrued on the unpaid balance. It is important to examine the transcript for each tax year you have a debt, as liabilities are tracked separately.

Many taxpayers first learn of a debt from an IRS notice like the CP14. While this notice gives a snapshot of your debt, the total amount owed is not static because interest and some penalties compound daily. An older notice will show a lower balance than the current amount due, which is why a recent tax transcript or your online IRS account provides the most accurate figure.

Exploring IRS Resolution Options

Once you have a clear understanding of your total tax liability, you can explore the resolution programs offered by the IRS. Each program is designed for different financial circumstances and has specific eligibility requirements. These options range from short-term extensions to more complex settlements.

Short-Term Payment Plan

For taxpayers who can resolve their debt quickly, a short-term payment plan offers an extension of up to 180 days to pay the full balance. This option is available to individuals who owe less than $100,000 in combined tax, penalties, and interest. A significant advantage is that there is no setup fee, although interest and applicable penalties will continue to accrue until the debt is paid in full. You can apply for this extension through the IRS Online Payment Agreement tool or by phone.

Installment Agreement (Payment Plan)

When more than 180 days are needed, an Installment Agreement is a common solution that allows you to make monthly payments for up to 72 months. A streamlined installment agreement is available to individuals who owe a combined total of $50,000 or less. These agreements are typically easier to obtain and do not require a detailed financial statement.

For tax debts exceeding $50,000, the process can be more involved and may require submitting a Collection Information Statement (CIS) so the IRS can analyze your finances. Setup fees apply to all installment agreements, though they may be lower for online applications or waived for low-income taxpayers. Interest and late-payment penalties continue to accumulate on the outstanding balance throughout the life of the agreement.

Offer in Compromise (OIC)

An Offer in Compromise (OIC) allows certain taxpayers to resolve their tax liability for less than what they originally owed. This option is generally granted only when the taxpayer’s financial situation suggests the full debt is unlikely to be collected. The IRS evaluates OIC applications on three grounds: Doubt as to Collectibility, Doubt as to Liability, and Effective Tax Administration.

Doubt as to Collectibility is the most common basis and applies when your assets and income are less than the full amount of the tax debt. Doubt as to Liability is used when there is a genuine dispute over whether the tax is correct. Effective Tax Administration may be granted if collecting the full amount would cause economic hardship or be unfair due to exceptional circumstances.

Currently Not Collectible (CNC) 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 does not disappear and interest and penalties continue to accrue.

To qualify for CNC status, you must demonstrate that you cannot afford to pay your basic living expenses and your tax debt. The IRS will periodically review your financial situation to determine if your ability to pay has improved. If your income increases, the IRS can remove the CNC status and require you to begin making payments.

Innocent Spouse Relief

Innocent Spouse Relief is for individuals who filed a joint tax return and believe they should not be held responsible for tax liabilities created by their spouse or former spouse. When a couple files a joint return, both are held liable for the entire tax debt. This relief can absolve one spouse of this responsibility if certain conditions are met.

To qualify, the requesting spouse must show that the tax understatement was due to erroneous items of the other spouse, that they did not know about the error, and that it would be inequitable to hold them liable. There are three types of relief: Innocent Spouse Relief, Separation of Liability, and Equitable Relief. The IRS determines which applies based on the facts presented in Form 8857, Request for Innocent Spouse Relief.

Required Information and Forms for Resolution

To apply for most IRS tax resolution programs, you must provide a detailed account of your financial situation. The primary vehicle for this disclosure is the Collection Information Statement (CIS), a series of forms designed to give the IRS a complete picture of your ability to pay. The most common form for individuals is Form 433-F or 433-A, while businesses use Form 433-B.

Regardless of the specific form, the categories of required information are consistent. You will need to provide documentation for:

• Assets, including cash on hand, bank account balances, investments, real estate, and vehicles.
• Complete monthly income from all sources, such as wages, self-employment earnings, and rental income.
• A detailed breakdown of your necessary monthly living expenses, which the IRS compares to national and local standards.
• Information about your employment, including your employer’s name, address, and your pay rate.

For those pursuing an Offer in Compromise, the application package is more extensive. It includes Form 656, “Offer in Compromise,” and a specific version of the CIS form tailored for OIC applications.

Submitting Your Resolution Request

After selecting a resolution path and completing the required forms, the final step is to submit your request to the IRS. The submission method varies depending on the resolution you are seeking.

For eligible payment plans, the IRS Online Payment Agreement (OPA) tool is the most efficient method. The online process guides you through entering your information, and in many cases, you will receive an immediate decision. If you are not eligible for the online application or prefer to file by mail, you will submit Form 9465, Installment Agreement Request, to the address listed in the form’s instructions.

Submitting an Offer in Compromise requires mailing a comprehensive package. The completed Form 656, the appropriate Form 433, and all supporting financial documentation must be sent to the specific IRS location designated for processing OICs. Your OIC package must also include the application fee and the initial offer payment, unless you qualify for a low-income waiver.

After submission, the IRS will send a letter confirming receipt of your application. The timeframe for a final decision can vary, from immediate approval for a streamlined online agreement to several months for an OIC. During this period, an IRS employee may contact you for additional information, and it is important to respond promptly to any correspondence.