If you owe back taxes and are unable to fully pay your balance, you may qualify for a program through which the IRS accepts less than you owe as full payment of your debt. If you don’t qualify for the program, you may qualify for other hardship-based programs that result in your total payments equaling less than the full amount owed. The amount unpaid through either of these methods is forgiven by the IRS.
Offer In Compromise
The traditional IRS settlement method is through the Offer in Compromise program. You’re a good candidate for the program if you have little or no disposable monthly income and little or no equity in assets. Your offer amount is calculated by multiplying your disposable monthly income by 60 and adding your asset equity to the balance. The result is the minimum amount you can offer to settle your debt. IRS acceptance of your offer is based on a comprehensive and often lengthy review of your income, assets and future ability to repay the debt. If your offer is accepted, you must pay the offer amount in less than 24 months.
Partial Payment Plan
An alternative to the offer program is the Partial Payment Installment Agreement (PPIA). This is a monthly installment agreement by which you pay only the amount you can afford each month. Under a partial payment plan, you will not pay the full amount you owe before the IRS collection statute expires. For example, if 24 months exist on the collection statute for your balance, you will only make payments for 24 months, even if the amount you pay during that time does not satisfy your debt. In general, payment under this program is easier to establish and is a good solution if you can’t full pay your balance and do not qualify for an Offer in Compromise.
The IRS has ten years from the date your tax return was filed, or the date a tax balance was assessed, to collect the debt. If your balance is not collected by the expiration date, the IRS writes off the remainder. The IRS may not attempt further collection of a balance that is expired, nor can your future refunds be taken to pay the balance. You can check your collection statute dates by calling the IRS at 800-829-1040. Ask for the expiration date for each year that you have a balance.
If you request liability resolution under the Offer in Compromise or Partial Payment Installment Agreement methods, you must supply full financial disclosure paperwork to the IRS on Form 433-A, Collection Information Statement for Individuals (see Resources). In addition to this written statement, you must supply documents to support the information you claim. Examples of support documents may include pay stubs, bank statements, mortgage payments and lending statements. An Offer in Compromise can only be requested by completing an official Offer application with the Offer in Compromise unit. A partial payment plan can be requested by calling the IRS at 800-829-1040 and faxing or mailing your financial information to the agent
With a background in taxation and financial consulting, Alia Nikolakopulos has over a decade of experience resolving tax and finance issues. She is an IRS Enrolled Agent and has been a writer for these topics since 2010. Nikolakopulos is pursuing Bachelor of Science in accounting at the Metropolitan State University of Denver.