Paying Back the IRS After an Audit: Your Options

Receiving a bill from the Internal Revenue Service after an audit can create immediate financial pressure. However, the IRS provides structured pathways to resolve tax debt, and understanding these options is the first step toward regaining control.

This guide explains the payment process following an audit. It covers understanding the bill, gathering the necessary financial information, and exploring the available payment solutions to settle your obligation with the IRS.

Understanding Your Post-Audit IRS Bill

When an audit concludes that you owe additional tax, the IRS formalizes the findings in a report like Form 4549, Income Tax Examination Changes. This document details the adjustments the auditor made to your return, outlining each specific change to your income, deductions, or credits. It provides a calculation of the proposed additional tax and serves as the official communication of the audit’s outcome.

Form 4549 breaks down the proposed changes by showing the original figures from your tax return alongside the corrected amounts. If you disagree with these findings, you have the right to challenge them before the bill is finalized. If you agree or do not respond, the process moves forward.

Following the examination report, the IRS will assess the tax and send a formal bill. This notice includes the principal tax amount from the audit adjustments plus any accrued penalties and interest. Penalties are added for not paying the tax on time, and interest is charged on the underpayment from the original due date of the return. The bill will provide a total balance due and a deadline for payment.

Information and Documents for Payment Solutions

Before you can resolve your tax debt, you must assemble a comprehensive picture of your financial situation. The IRS requires detailed evidence of your income, expenses, and assets to evaluate your eligibility for payment alternatives. More flexible options, like an Offer in Compromise, demand more thorough documentation.

For an Installment Agreement, the primary application is Form 9465, Installment Agreement Request. To complete this, you will need personal identification information, the total tax you owe, and a proposal for a monthly payment amount. If you owe over $50,000, the IRS also requires a detailed financial disclosure on Form 433-F, Collection Information Statement.

An Offer in Compromise (OIC), which allows you to settle tax debt for less than the full amount, requires more extensive documentation. The application starts with Form 656, Offer in Compromise, and must be accompanied by Form 433-A (OIC), Collection Information Statement. You will need to provide proof of your financial standing, including:

• Recent pay stubs and bank statements
• Records of all monthly living expenses like rent, utilities, and loan payments
• Statements for bank, investment, and retirement accounts
• Valuations for real estate, vehicles, and other significant property
• Documentation of all liabilities, such as credit card debt and mortgages

The IRS uses this information to calculate your reasonable collection potential, which determines if your offer is accepted.

Applying for IRS Payment Options

After preparing your documents, you can submit your application online or by mail. The method you use depends on the type of agreement you are seeking.

The IRS’s Online Payment Agreement (OPA) tool is often the most direct method. You can apply online for a short-term payment plan of 180 days or less if you owe less than $100,000 in combined tax, penalties, and interest. For a long-term installment agreement, the online application is available to taxpayers who owe $50,000 or less. To use the OPA tool, you will need to create an account to verify your identity and enter your financial information to propose a payment plan.

If you do not qualify for the OPA tool or are applying for an Offer in Compromise, you must submit your application package by mail. An OIC application must include the non-refundable $205 application fee and the initial offer payment, though this fee may be waived for low-income taxpayers. It is advisable to send these packages via certified mail to have a record of the submission.

After submitting your application, the IRS will send a letter confirming its receipt. The review process for an installment agreement can take a few months, while an OIC takes between 6 and 12 months to process. During this time, the IRS may contact you for additional documentation, and it is important to respond promptly.

Maintaining Your Payment Agreement

Securing an approved payment agreement with the IRS comes with ongoing responsibilities. The agreement is conditional upon your continued compliance with all tax laws, and you must meet all future tax obligations to prevent the agreement from defaulting.

A primary condition of any IRS payment plan is the requirement to file all future tax returns on time. This includes income tax returns and, for self-employed individuals, making required quarterly estimated tax payments. Failing to file a future return on time is a common reason for an agreement to be terminated by the IRS.

In addition to timely filing, you must also pay any new tax liabilities in full and on time. If a future tax return shows a balance due, that amount must be paid by the deadline to avoid jeopardizing your existing agreement. A new balance can trigger a default, and if your agreement is terminated, the IRS can resume collection actions, such as levies on your wages or bank accounts.