If you can’t afford to pay your taxes on time, you may qualify for some form of tax debt relief. Usually, this relief comes in the form of a payment plan or debt settlement with the IRS.

If you think you need tax debt relief, act quickly to resolve your issues. The IRS charges a failure-to-pay penalty of 0.5% of your unpaid taxes per month or part of a month, plus interest. Interest starts accruing on the day your taxes are due (Tax Day, which is generally April 15), and continues until you pay your bill in full.

So if you owe $1,000 and you pay the balance six months late, you’ll be hit with a failure-to-pay penalty of $30, plus the amount of interest that’s accrued. That doesn’t sound like a lot, but if you delay payment long enough, the penalty can be as much as 25% of your unpaid taxes.

What’s more, the IRS can put a lien on your property (a legal claim) if you don’t pay what you owe. A lien can result in the IRS seizing the proceeds when you sell the property. Or it may place a tax levy on the property, in which case it can take the property and sell it to recoup the taxes you owe the government. Affected property can include not only your home, if you own it, but also personal property and financial assets.

Below, we discuss that the Tax Debt Relief program is and how you can benefit from it.

• How do I get my IRS Debt Forgiven?
• What is the Fresh Start Program with the IRS?
• What to do if you Owe the IRS a lot of Money?
• How long does the IRS give you to pay back Taxes?
• What do I do if I Owe the IRS over 10000?
• How long does the IRS give you to pay back Taxes?

How do I get my IRS Debt Forgiven?

Perhaps the IRS’s best-kept secret is that you can be forgiven of tax debt you owe but cannot pay. There are four programs of tax debt forgiveness and millions of people have used the programs.

1. “The Life Jacket”

If you owe taxes but are either unemployed or underemployed and cannot make a payment, you can request what is referred to as “uncollectible status.” This is the process the IRS uses to freeze the collection account. The agency ceases any attempts to enforce collection in order to give you time to get back on your feet financially.

Read Also: IRS Tax Debt Relief Program

While it is not a permanent fix to your tax problem, it does help greatly by stopping wage levies, bank levies and property seizures. To obtain uncollectible status, you need to file a financial statement on Form 433A for individuals, and Form 433B for businesses.

The financial statement shows the IRS that all the money you earn is needed to provide the necessary living expenses for your family. Uncollectible status helps you to stay afloat until you are able to pay the tax or apply for forgiveness under another program.

2. “Cents on the Dollar”

Using this program, we have settled countless cases for less than 10 cents on the dollar. The program is called the Offer in Compromise. The IRS’s Offer in Compromise was revised in 1992 because of my book How Anyone Can Negotiate With The IRS and WIN! That was the first book ever written for the public that exposed the right to discharge taxes in bankruptcy.

Under the Offer in Compromise program, you settle your case for less than you owe. The settlement amount is determined on the basis of what you can afford to pay. For example, suppose you owe $50,000 but you can afford to pay just $10,000. In that case, you’d settle for 20 cents on the dollar.

This process has saved taxpayers literally billions of dollars in taxes, penalties and interest they could never otherwise have paid. This allows them to get back on tract as productive, taxpaying citizens free of IRS enforcement and the nagging presence of IRS liens.

There are three different Offer in Compromise programs. The most common is based upon your ability to pay. It’s called an offer based upon doubt as to collectibility. Under that program, you settle for what you are able to pay, rather than what you owe.

Under the second program, you’re able to challenge the amount of the actual debt and settle for what you actually owe, not what the IRS says you owe. This is called an offer based upon doubt as to liability. This is especially helpful for victims of a bogus tax audit.

The third program allows you to pay a lesser amount if full payment of the tax would put you into a position of financial hardship in the future. This is called an effective tax administration offer. This is very helpful in cases where you have sufficient equity in your house to pay the tax, but full payment would wipe out all your resources and make if difficult or impossible to provide for future living expenses.

3. “Wage-Earner’s Repayment Plan”

Contrary to what many tax professionals believe, income taxes are dischargeable in bankruptcy! This right has existed since 1966. However, it was not until 1989, on the heels of the release of my book How Anyone Can Negotiate With The IRS and WIN!, that this fact was made known to the public on a broad scale.

Because of that, the IRS was forced to rewrite its Publication 904, dealing with the issue of discharging taxes in bankruptcy. The publication was rewritten to reflect your ability to discharge taxes in bankruptcy.

A Chapter 13 bankruptcy allows a taxpayer to enter into an agreement to pay back taxes in accordance with his ability to make monthly payments. When certain rules are met, whatever cannot be paid back within 60 months is usually discharged.

Because the IRS has revised its Offer in Compromise procedures, thousands of these bankruptcies have been avoided. However, knowing your right to a Chapter 13 discharge is mandatory. In many cases you must let the IRS know of your ability to discharge taxes in order for them to give serious consideration to your offer. You must be prepared to show the IRS that they will get more by accepting your offer than they will by forcing you into bankruptcy.

4. “Fresh Start”

This program requires the filing of a Chapter 7 bankruptcy. Under a Chapter 7, certain taxes can be discharged entirely and a fresh start granted. For some, this is the best and fastest way to eliminate tax debt entirely and creating a new life free from IRS liens and levies. When properly filed, the IRS must cancel your debt and allow you to start over.

Understanding your right to a fresh start through Chapter 7 may prevent you from having to file one. For example, you may be able to first obtain uncollectible status and survive on that status long enough to be able to make an Offer in Compromise.

The fact that you could file a Chapter 7 can provide the IRS with just the right motivation to allow you a little more time to get on your feet. While bankruptcy is often the last choice to resolve a tax debt, just knowing this right can prevent you from ever having to use it.

The vast majority of people who owe taxes are honest people in financial trouble through no fault of their own. They need help. They need a way to solve the problem. Continued levies and seizures don’t solve the problem. It just drives people underground. When you force people to make a choice between paying taxes and feeding their family, they will feed the family every time.

By offering a reasonable forgiveness program, these people are brought back into the system as productive, taxpaying citizens. This is far more desirable than hiding in the underground economy or living on government assistance.

On the threshold of establishing these programs, then IRS Commissioner, Shirley Peterson stated that “you can’t get blood from a turnip, and when we’re dealing with turnips, we’re better off cutting our losses and moving on.”

What is the Fresh Start Program with the IRS?

The Fresh Start program contains several measures designed to streamline the collection process and make it easier for a larger number of taxpayers to make payment arrangements for their unpaid taxes. The major provisions of this program include the following:

Threshold

Increasing the dollar threshold for tax liens to $10,000.

Simplification

Simplifying and accelerating the procedure for having liens and levies removed after the taxes have been paid (this was formerly a very slow and cumbersome process). Taxpayers can now have these removed within 30 days upon request once their outstanding tax balance has been eliminated.

Both this and the previous provision were aimed at reducing the substantial negative impact that tax liens could have on the taxpayer’s credit report because, when a lien was withdrawn, it was effectively expunged from the taxpayer’s credit history. 

However, in April 2018, all tax liens were removed from credit reports by all three credit bureaus, Experian, TransUnion, and Equifax. To request the withdrawal of a lien from the IRS, taxpayers will need to complete and submit IRS Form 12277.

Installments

Instituting a Direct Debit Installment Agreement that withdraws a fixed payment from the taxpayer’s account on a regular basis. This program is offered directly in conjunction with the two previous provisions. Once the taxpayer has made several payments in a timely fashion, the IRS will lift the tax lien even before the balance is paid in full.

Taxpayers who are currently making installment payments and convert to the direct debit program can also have their liens lifted immediately upon request. (The IRS will immediately file a new lien on any taxpayer who had his or her lien withdrawn upon request and then defaults on this agreement.)

Small Businesses

Increasing the dollar threshold for installment agreements for small businesses. Previously, small businesses that owed more than $10,000 could not set up an installment agreement. The program raises this balance to $25,000 and allows businesses to pay off their tax debt over a two-year period.

No Means to Pay

Doubling the dollar threshold for those who wish to file an offer in compromise from $25,000 to $50,000. This is a major concession for taxpayers who have no means to pay their back taxes.

The Fresh Start program is ultimately intended to ease the burden on responsible taxpayers who are proactively taking the necessary steps to pay off their tax debt. The increase in the dollar thresholds in the above provisions are essentially an inflationary adjustment that is long overdue.

Furthermore, the lien withdrawals are only available for individuals and businesses with income tax liability only, and the program is only designed for use with income taxes. Those with delinquent gift, estate or employment taxes cannot use the program as a means of relief.

The Fresh Start program will provide substantial relief to thousands of delinquent taxpayers who are struggling to catch up on their tax debt. The withdrawal of tax liens under the provisions of this program can help many filers to keep or get jobs that can allow them to pay off their balances in full. For more information, visit the IRS Fresh Start program site.

What to do if you Owe the IRS a lot of Money?

If you find yourself with income-tax debt, you aren’t alone. According to the U.S. Internal Revenue Service (IRS) Delinquent Collections Activities Data book, over 11 million Americans owed over $125 billion in back taxes, penalties and interest in 2019. That number can only grow as the economy weakens and small business owners continue to struggle.  

The good news is there are plenty of ways to resolve your tax debt. Here are the four most common:

1. Online Payment Agreements

Under the IRS’ Fresh Start initiative, individuals who owe $50,000 or less in income tax and businesses that owe $25,000 or less in payroll tax may qualify for an Online Payment Agreement. You can set up the payment for any amount you can afford as long as the debt is paid in full within 72 months (6 years). You can also modify installment agreements through the program as well. 

You may qualify to apply online for either of two types of plans:

• Long-term payment plan (installment agreement): You owe $50,000 or less in assessed tax, penalties and interest, and filed all required returns.
• Short-term payment plan (paying in 120 days or less): You owe less than $100,000 in combined tax, penalties and interest.

If you are a sole proprietor or independent contractor, you can apply for a payment plan as an individual. There will be some application fees: $31 to apply online and pay through automatic withdrawals or $149 to apply online and pay through another method (fees can be reduced for low-income applicants). 

2. Installment agreements 

If you need longer than 72 months to pay your debt or you owe more than $50,000 the IRS will request a Collection Information Statement (Form 433-A, Form 433-B or Form 433-F). These forms provide an in-depth analysis of your assets, as well as your income and expenses to help determine what you can pay on a regular basis.

For example, if the financial statement shows that you can only afford $400 a month after you’ve paid your necessary expenses, that will be the amount of your installment agreement. These financial statements also play an important role in the other resolutions you may obtain.

You can request the agreement by phone or by mailing Form 9465 to a service center. Be prepared for delays. Service centers are behind in processing installment agreements. The IRS is currently working to reopen its offices due to Covid-19 restrictions. Check IRS operations and services for the most up-to-date status.

Also keep in mind that interest and late-payment penalties continue to accrue on any unpaid taxes. However, the IRS halves the penalty assessed for failure to pay taxes while an installment agreement is in effect, reducing it from 0.5 percent per month to 0.25 percent. For the calendar quarter beginning July 1, 2020, the interest rate on underpaid taxes is three percent.

3. Currently-Not-Collectible Status

If your financial statement shows that your expenses outweigh your income, and you don’t have assets that can pay your debt in full, then you qualify for Current-Not-Collectible (CNC) status. In this resolution, you don’t have to pay anything towards your debt. It’s like a student loan forbearance; you don’t have to pay on the debt but interest and penalties continue to accrue.

The IRS may also review your account in a year or two to see if your financial situation has improved to the point where you can make monthly payments. But during that time, they won’t take any collection action against you.

In addition, it’s possible to remain in CNC for the entire period the IRS has to collect the debt — the collection statute expiration date (CSED) which is usually 10 years from the date the tax is assessed (barring any extension of the statute).

4. Offer in Compromise

The last resolution we want to cover is the offer in compromise. With this agreement, you pay the IRS only a percentage of what you owe. Once you pay that amount, the rest of your debt is forgiven. This type of resolution is the most attractive of all because you pay less than you owe and have more finality than you would with CNC.

Unfortunately, it’s not as easy as calling the IRS and offering whatever you want. You have to fill out a financial statement: this time a 433-A (OIC) for the self-employed or 433-B (OIC) for businesses. In addition, you have to complete Form 656, which outlines your offer amount and why you think the offer should be accepted. 

The offer amount is based on your disposable income and equity in assets. Lately, it has taken a long time to get the offers processed. In addition, in 2019, the IRS received 54,225 OICs and only accepted 17,890 (33%). 

However, if you think you qualify, it can be a great way to get a fresh start.

How long does the IRS give you to pay back Taxes?

Your specific tax situation will determine which payment options are available to you. Payment options include full payment, short-term payment plan (paying in 120 days or less) or a long-term payment plan (installment agreement) (paying in more than 120 days).

If you’re in that situation, be sure to file the paperwork with the Internal Revenue Service. If you don’t, the IRS will charge you a penalty that amounts to 5 percent of the balance; each month that you don’t pay, it will add another 5 percent, up to 25 percent. That balance will also be subject to interest, which the IRS will adjust each quarter. The rate is currently 5 percent.

Then consider the options mentioned above to help you pay as soon as possible.

What do I do if I Owe the IRS over 10000?

If you owe back taxes, your options vary depending on how much you owe. Generally, the IRS splits tax debt into the following categories: less than $10,000, $10,000 to $50,000, and over $50,000. Here’s a look at what to expect in each situation.

What If I Owe Less Than $10,000 to the IRS

When you owe the IRS several thousand dollars, it can feel stressful, but in most cases, you don’t need to worry that much. Since implementing the Fresh Start Initiative in 2011, the IRS has stopped issuing tax liens for most taxpayers who owe less than $10,000. However, there are exceptions.

If you repeatedly ignore notices or demands for payments, the IRS may decide to put a lien on your assets. A lien is basically a legal claim to your assets. If you sell your assets, the IRS has a right to the proceeds. To avoid this risk, you need to contact the IRS to set up a payment arrangement. Luckily, you automatically qualify for a Guaranteed Installment Agreement when you owe less than $10,000 in tax.

What If I Owe Less Than $50,000 to the IRS

If someone says “I owe the IRS $20,000” or “I owe the IRS $30,000”, their situation is going to be different than someone who owes less than $10,000. If you owe IRS over $10,000 in tax but less than $50,000, you fall into an intermediary category. In this range, the IRS is a lot more likely to issue a tax lien, but it’s also relatively easy to get a payment arrangement approved.

In particular, when you owe less than $50,000 to the IRS, you can qualify for a Streamlined Installment Agreement. You can apply for this payment plan online or by using Form 9465 (Installment Agreement Request).

Luckily, you don’t have to provide a lot of information on your application. The IRS only wants to know how much you owe and how much you can afford to pay per month. If you owe less than $50,000, the IRS will automatically approve your payment arrangement as long as you can pay off your balance in 72 months or less.

When the collection statute expiration date (CSED) falls before the end of the 72-month period, you need to pay off your tax debt sooner or sign a waiver to move back the expiration date.

If you can’t afford to pay your tax debt in 72 months, you need to fill out Form 433-A or 433-F (Collection Information Statement). These forms require extremely detailed financial information, and they allow you to request a longer time to make payments, an offer in compromise, or other hardship arrangements.

Special Considerations for People Who Owe $25,000 to $50,000

The IRS has some special rules for people who owe between $25,000 and $50,000 and want to set up installment plans. If your tax debt falls in this range, you have to set up automatic payments when requesting a payment plan.

The IRS can withdraw automatic payments from your bank account, or if you are employed, the IRS can take payments directly from your paycheck. For the latter option, you also need to complete Form 2159 (Payroll Deduction Agreement). This is called a Direct Debit Installment Agreement, and at this level of tax debt, acceptance is automatic.

If you don’t want to make automatic payments, you also have to file Forms 433-A or 433-F (Collection Information Statement).

Additionally, if you owe between $25,000 and $50,000 and you have defaulted on a payment agreement in the past, you need to provide the IRS with some extra details when you apply for the new installment agreement. That includes your marital status, number of dependents, net income, and payment schedule. The IRS also wants to know about your car payments, health insurance premiums, and court-ordered payments such as repayments for a Chapter 13 bankruptcy or child support payments.

Basically, this information reassures the IRS that you won’t default on the new agreement. However, as of late 2017, the IRS is considering getting rid of this requirement for extra information.

What If I Owe More Than $50,000

Taxpayers who owe IRS over $50,000 may face tax liens as described above, and if you don’t work out a payment plan with the IRS, you may also face tax levies. That’s when the IRS takes your assets and sells them to cover your tax debt—it’s one of the most serious collection actions used by the agency.

Started in 2018, the IRS may also take away your passport if you owe more than $50,000 in tax debt. Once the State Department has revoked your passport, you can return to the United States if you are out of the country, but after that, you can’t travel internationally until you resolve your tax debt.

Usually, if you owe more than $50,000 in tax debt, you have to provide the IRS with detailed financial statements to qualify for a payment plan. However, from late 2016 to September 2018, the IRS rolled out a pilot program to offer Streamlined Installment Agreements to people with over $50,000 but less than $100,000 in tax debt. That includes 90% of the people who owe money to the IRS.

Under this experimental program, taxpayers can make payments for up to 84 months (or the number of months required to pay off the debt by the Collection Statute Expiration Date, whichever period is shorter). As long as you make payments through direct debit or a payroll deduction, you don’t have to fill out a Collection Information Statement. The IRS plans to make a final determination on whether or not to continue this program in late 2017 or early 2018.

What If I Owe Taxes for My Business

The rules for business taxes are slightly different from the rules for individual taxpayers. Active businesses can only qualify for streamlined agreements if they owe less than $25,000 in tax.

However, sole proprietors who are out of business can qualify for the Streamlined Installment Agreement if they owe the IRS between $50,0001 and $100,000. If your business owes more than that, you need to provide detailed financial information to get a payment plan approved.

How long does the IRS give you to pay back Taxes?

In recent years, the Internal Revenue Service (IRS) has been more amenable to working out late tax payments (usually by installment agreements). But you have to address the problem up front, be proactive in how you negotiate, and not keep Uncle Sam waiting for his money. Here are your options and the steps you can take.

A Fresh Start for Tardy Taxpayers

Back in 2011, the IRS rolled out its Fresh Start program, geared toward giving late-paying Americans a path back to paying off their tax liabilities.

“We are making fundamental changes to our lien system and other collection tools that will help taxpayers and give them a fresh start,” IRS Commissioner Doug Shulman said at the time. “These steps are good for people facing tough times, and they reflect a responsible approach for the tax system.”

The IRS particularly focused on the following changes:

• Significantly increasing the dollar threshold when liens are generally issued, resulting in fewer tax liens.
• Making it easier for taxpayers to obtain lien withdrawals after paying a tax bill.
• Withdrawing liens in most cases where a taxpayer enters into a Direct Debit Installment Agreement.
• Creating easier access to installment agreements for more struggling small businesses.
• Expanding a streamlined Offer in Compromise program to cover more taxpayers.

Always File Your Return

Helpful as it is for the IRS to offer more options for struggling taxpayers, you have to do your bit, too.

First of all: If, come April 15, you owe the IRS an amount that you cannot pay in one lump sum, it is important to file the return anyway, says Lawrence Brown, an attorney in the office of Brown P.C. in Fort Worth, Texas.

“This will reduce some of the penalties,” he explains. “Occasionally clients tell us that they did not file a return because they were unable to pay the tax due. This usually causes them to pay penalties that are significantly greater than they would have paid had they at least filed the return.”

How the IRS Proceeds with Late Payments

“The IRS will not immediately pursue you for delinquent tax penalties and interest,” Brown notes. “In many cases, it will take months before the IRS begins collection efforts.”

But begin they will. At first, collection efforts can seem benign, consisting of just computer-generated letters. At some point, however, the IRS will begin very aggressive collection tactics, including wage levies in which the government contacts your employer advising that you have delinquent tax liabilities and that any wages that would be paid to you should be paid to the IRS.

“In short, once the IRS begins aggressive collection activity, your reputation can be damaged and you can be crippled financially,” Brown says.

Options for Late Payers

Don’t let things get to that point. Respond as soon as you get the first back-taxes notice.

Basically, taxpayers have three options for paying back taxes:

1. Under an installment agreement, a taxpayer pays the amount due over a period of time.
2. An offer in compromise involves the taxpayer paying one lump sum in an amount that is less than the amount actually owed.
3. The taxpayer can request that the IRS temporarily delay collection until the taxpayer’s financial situation improves.

The IRS is usually quite amenable to any of the above. Whether it will accept an installment agreement request, or an offer in compromise, or a collection delay depends largely on your financial condition. You will have to fill out forms attesting to all your assets and liabilities, your sources of income, and your debts. If you have the money or means to pay your tax bill, the IRS probably will not compromise much.

Go for an Installment Agreement

Setting up a payment plan is probably the best way to go, resulting in the least cost and detriment to you. Note that when you submit a request to the IRS for an installment agreement, you will have a better chance of success if you:

• Let the IRS know you’ll pay the debt off within six years—but ideally within three years.
• Aim high. The monthly payment you offer should be equal to or higher than what the IRS believes it can garner from you from a negotiated agreement that it initiates.
• The regular (usually monthly) tax payment you introduce to the IRS should be tied to existing IRS criteria. For example, you should subtract household expenses from your total income. Then cut a check for the difference to the IRS.

Bear in mind that, even with an agreed-upon payment plan, penalties and interest accrue until the back-tax balance is paid in full.

Stick to Your Payments

Do not fail to make your payments on time to the IRS.If you violate the terms of your arrangement, the IRS will attach and seize property that you own, including bank accounts and even putting a lien on your home.

However, in the event that you are having problems making your installments, speak to the IRS. You should be able to work through it. Being upfront with the IRS is the key—it does not like surprises.

Obtaining Professional Help

A professional tax representative can usually be of significant help in negotiating the most favorable possible compromise or installment agreement. That said, beware of “pennies on the dollar” firms or 1-800 number firms that advertise on late-night television, Brown says. 

Read Also: What are Taxes and Why do we File them each Year?

“In many instances, these firms will simply take a client’s money and perform no or minimal services,” he explains. “Many of these firms have been prosecuted in their states of origin for unlawful and deceptive business practices.”

“If you are interested in obtaining representation, interview two or three potential firms in your city,” he advises. Make sure that IRS tax controversy and IRS collection resolutions are the backbones of their practices. Many attorneys and Certified Public Accountants (CPAs) do tax planning but rarely interface with the IRS. It’s important that your representative has deep experience negotiating with the IRS in back-tax payment cases.

Finally

Nobody is saying that the federal government is getting all warm and fuzzy about tardy payments. However, the IRS does offer programs for Americans to get back on track with their taxes. The key is to act quickly and work out a resolution as soon as possible.