How to Get IRS Tax Debt Relief

How to Get IRS Tax Debt Relief: A Comprehensive Guide for Taxpayers

Dealing with IRS tax debt can be overwhelming, but there are several tax relief options available to help taxpayers manage or reduce their tax liabilities. Whether you’re facing unpaid taxes, penalties, or interest, understanding the available programs and strategies is critical to resolving your debt efficiently. Taxpayers can use this guide to get a good overview of IRS tax debt relief options to resolve your tax debt, eligibility criteria, and actionable steps to take.

Understanding IRS Tax Debt

IRS tax debt arises when a taxpayer owes unpaid taxes, penalties, or interest to the Internal Revenue Service. This can result from underreporting income, failing to file tax returns, or not paying taxes owed by the filing deadline. The IRS is a powerful creditor with the authority to impose tax levies, tax liens, garnish wages, or seize assets, making it essential to address tax debt promptly.

The IRS offers several programs to help taxpayers resolve their debt, ranging from payment plans to settlements. Below, we outline the primary relief options, their requirements, and how to pursue them.

Key IRS Tax Debt Relief Options

Here are the main legal tools for obtaining IRS tax debt relief:

1. Installment Agreements
2. Offer in Compromise (OIC)
3. Currently Not Collectible (CNC) Status
4. Penalty Abatement
5. Innocent Spouse Relief
6. Tax Bankruptcy (only with proper planning)

Each option suits different financial situations and debt levels. Let’s explore them in detail.

1. Installment Agreements

An Installment Agreement (IA) allows taxpayers to pay their tax debt in manageable monthly payments over time. This is one of the most common relief options for those who can’t pay their tax debt in full but have some ability to make payments.

Types of Installment Agreements

Type	Description	Eligibility
Short-Term Payment Plan	Pay debt within 180 days. No setup fees.	Debt ≤ $100,000 (tax, penalties, interest combined).
Long-Term Payment Plan	Monthly payments over several years.	Debt ≤ $50,000 for individuals; must file all required returns.
Partial Payment Installment Agreement (PPIA)	Pay reduced monthly amounts based on ability to pay. Requires financial review.	Demonstrated inability to pay full debt; IRS assesses income and expenses.

How to Apply

• Online: Use the IRS Online Payment Agreement tool for debts under $50,000.
• Form 9465: Submit Form 9465 (Installment Agreement Request) for larger debts or PPIAs.
• Phone: Call the IRS at 800-829-1040.
• Professional Help: A tax attorney can negotiate terms, especially for complex cases or PPIAs.

Pros and Cons

• Pros: Flexible payments, prevents aggressive IRS collection actions (e.g., levies).
• Cons: Interest and penalties accrue until the debt is paid; setup fees may apply.

Tip: Ensure all tax returns are filed before applying, as unfiled returns disqualify you from an IA.

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2. Offer in Compromise (OIC)

An Offer in Compromise allows taxpayers to settle their tax debt for less than the full amount owed. The IRS accepts OICs when it believes the offered amount is the most it can reasonably collect.

Eligibility for an OIC

• You must prove doubt as to collectibility (you can’t pay the full debt) or doubt as to liability (you dispute the debt’s validity).
• All tax returns must be filed.
• You cannot be in an open bankruptcy proceeding.
• You must demonstrate financial hardship or limited ability to pay based on income, expenses, and assets.

OIC Application Process

1. Complete Form 656: Submit the Offer in Compromise booklet.
2. Submit Form 433-A or 433-B: Provide a detailed financial statement (for individuals or businesses).
3. Pay Application Fee: $205 (waived for low-income taxpayers).
4. Make Initial Payment: Choose a lump-sum (20% of offer) or periodic payment plan.
5. Wait for IRS Review: The IRS typically takes 6–12 months to evaluate an OIC.

Pros and Cons

• Pros: Significant debt reduction; stops collection actions during review.
• Cons: Low acceptance rate; requires detailed financial disclosure; non-refunded fees if rejected.

Tip: Work with a tax lawyer to calculate a realistic offer amount using the IRS’s formula: (Monthly disposable income × 12 or 24 months) + asset equity.

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3. Currently Not Collectible (CNC) Status

If you can’t afford to pay your tax debt or make payments, the IRS may classify your account as Currently Not Collectible. This temporarily halts collection actions, such as wage garnishments or bank levies.

Eligibility

• Your necessary living expenses (housing, food, transportation) exceed your income.
• You have little to no disposable income or assets to pay the debt.
• All required tax returns are filed.

How to Apply

• Submit Form 433-F (Collection Information Statement) to the IRS.
• Provide proof of income, expenses, and financial hardship.
• Contact the IRS or work with a tax professional to request CNC status.

Pros and Cons

• Pros: Stops IRS collections; no payments required while in CNC status.
• Cons: Debt remains (with accruing interest/penalties); IRS may review your status annually.

Note: CNC is not a permanent solution but can provide breathing room to improve your financial situation.

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4. Penalty Abatement

The IRS may waive penalties (but not interest) if you have a valid reason for failing to file or pay taxes on time. This is called penalty abatement and can significantly reduce your tax debt.

Common Reasons for Abatement

• Reasonable cause (e.g., illness, natural disaster, death in family).
• First-time penalty abatement (FTPA) for taxpayers with a clean compliance history.

How to Apply

• FTPA: Call the IRS at 800-829-1040 or submit a written request.
• Reasonable Cause: Submit a detailed letter with supporting documentation (e.g., medical records).
• Form 843: Use Form 843 (Claim for Refund and Request for Abatement) for formal requests.

Penalty Types and Amounts

Penalty Type	Amount	Abatable?
Failure to File	5% per month (max 25%)	Yes
Failure to Pay	0.5% per month (max 25%)	Yes
Accuracy-Related Penalty	20% of underpayment	Yes

Tip: FTPA is a one-time relief option, so use it strategically for the largest penalty.

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5. Innocent Spouse Relief

If your tax debt stems from a joint tax return and your spouse (or ex-spouse) is responsible for the errors or underpayments, you may qualify for Innocent Spouse Relief. This relieves you of liability for the debt.

Types of Innocent Spouse Relief

• Traditional Innocent Spouse Relief: You didn’t know (or had no reason to know) about the understatement of tax.
• Separation of Liability Relief: Allocates the tax debt between you and your spouse.
• Equitable Relief: Applies if you don’t qualify for the above but paying the debt would be unfair.

How to Apply

• File Form 8857 (Request for Innocent Spouse Relief).
• Provide evidence of lack of knowledge or financial hardship.
• The IRS typically responds within 6–12 months.

Tip: This relief is complex and often requires legal assistance to build a strong case.

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6. Tax Bankruptcy

If properly planned and executed, tax debt can be discharged through bankruptcy (Chapter 7 or Chapter 13). However, strict rules apply.

Eligibility

• The tax debt is income-based.
• The tax return was filed at least 3 years ago.
• The tax was assessed at least 240 days ago.
• No fraud or willful evasion was involved.

Pros and Cons

• Pros: Can eliminate qualifying tax debt (Chapter 7) or create a repayment plan (Chapter 13).
• Cons: May not discharge certain penalties/interest; complex legal process requiring specialty tax and bankruptcy attorney.

Note: Consult one of our tax bankruptcy attorneys to assess whether your tax debt qualifies.

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Steps to Start Your Tax Debt Relief

1. Assess Your Situation:
   • Calculate your total tax debt (tax, penalties, interest).
   • Review your financial situation (income, expenses, assets).
   • Ensure all tax returns are filed.
2. Explore Relief Options:
   • Use the tables above to identify programs you may qualify for.
   • Prioritize options based on your ability to pay and debt size.
3. Gather Documentation:
   • Collect financial records (bank statements, pay stubs, bills).
   • Prepare IRS forms (e.g., 433-A, 656, 8857) as needed.
4. Contact a Tax Attorney:
   • Call the IRS for simple requests (e.g., short-term payment plans).
   • Hire a tax attorney for complex cases (e.g., OIC, CNC, innocent spouse relief).
5. Monitor and Comply:
   • Make timely payments for IAs or OICs.
   • File future tax returns and pay taxes on time to avoid new tax debt.

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Why Work with a Tax Law Firm?

Navigating IRS tax debt relief can be daunting due to complex forms, strict deadlines, and the IRS’s rigorous review process. A tax law firm offers:

• Expertise: Knowledge of IRS procedures and negotiation strategies.
• Customized Solutions: Tailored advice based on your financial situation.
• Protection: Representation during IRS audits or appeals.
• Peace of Mind: Handling paperwork and communications on your behalf.

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Contact Us

IRS tax debt doesn’t have to define your financial future. Whether through an Installment Agreement, Offer in Compromise, or penalty abatement, relief is within reach. By understanding your options and taking proactive steps, you can resolve your tax debt. For a consultation, contact us to explore the best path forward.

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