Owing money to the IRS can be a significant source of stress, especially if you are unsure how to pay off your balance.
The IRS offers several relief options for individuals and businesses struggling to meet their tax obligations. Here is an overview of what is available.
Short-term payment plan
If you owe less than $100,000 in total taxes, interest, and penalties, you may qualify for a short-term payment plan that allows you to pay the full amount within 180 days.
This option can provide some flexibility, but interest and certain penalties will continue to add up until the balance is paid in full. There may also be setup fees. To apply, file Form 9465 with the IRS.
Long-term payment plan
A long-term payment plan is available as an installment agreement. If you owe less than $50,000, you may qualify for monthly payments over a period of up to 72 months, or six years.
Interest and penalties will continue to accrue while you are making payments, and setup fees may apply. To apply, file Form 9465 with the IRS.
Innocent spouse relief
If your tax debt is the result of errors or incorrect reporting by your spouse, you may qualify for innocent spouse relief.
This relief applies when the tax liability is related to your spouse’s income from employment or self-employment. To qualify, you must show that you did not know about the issue and had no reason to suspect it. To apply, file Form 8857 with the IRS.
Partial payment installment agreement (PPIA)
A partial payment installment agreement (PPIA) allows you to make monthly payments even if you cannot pay your full tax debt within the IRS’s 10-year collection period.
This option may be helpful if you cannot pay your full balance and do not qualify for an offer in compromise. To request a PPIA, file Form 9465, Form 433, and all required supporting documents.
Offer in compromise (OIC)
An OIC allows taxpayers to settle their tax debt for less than the full amount owed. The IRS considers several factors in deciding whether to accept an offer, including your income, expenses, ability to pay, and the value of your assets.
To qualify, you must do the following:
- Be current on all required tax return filings and estimated payments.
- Not being involved in an open bankruptcy case.
- Have a valid extension if applying during the current tax year.
- Completed timely tax deposits for the current and prior two quarters if you run a business.
About 30 to 40 percent of OIC applications are approved, and the amount accepted depends on your individual circumstances.
To apply, you must file the following:
- Form 433-A (OIC) for individuals or Form 433-B (OIC) for businesses.
- Form 656, which helps calculate the minimum offer amount.
- All relevant supporting documentation, such as pay stubs, bank statements, mortgage and loan documents, credit card statements, brokerage account records, and a detailed monthly budget.
- A $205 non-refundable application fee is required unless your offer is rejected.
- An initial non-refundable payment based on your proposed settlement offer.
Payment options include the following:
- Lump sum: This entails 20% of the offer amount upfront, with the remaining balance paid in five or fewer payments if the offer is accepted.
- Periodic payments: You must begin payments within 30 days of acceptance and continue monthly for up to 24 months.
The IRS usually stops collection efforts once you submit an OIC, but it may keep existing federal tax liens in place until your offer is accepted and all conditions are met.
If the IRS does not respond to your OIC within two years of receiving it, not counting any appeal time, your offer is automatically accepted. If your offer is denied, you have 30 days to appeal using Form 13711. The appeal process usually takes between six and twelve months.
Tax debt expiration (forgiveness after the collection period)
Generally, the IRS has ten years from the date your tax debt is assessed to collect what you owe. If the full amount is not collected within this time, the remaining balance may be forgiven. This type of relief is rare and involves complex rules and procedures.
Consider seeking professional guidance before deciding which option is right for you.
Each IRS relief option has its own benefits, limitations, and complexities. Before moving forward, it is a good idea to consult with a qualified tax professional who can help you understand your options and guide you toward the best solution for your financial situation. Reach out to our Vrakas team to learn more!
