Resolving IRS Debt Without Full Payment

Last updated on October 9, 2023

Taxpayers who find themselves with a tax debt are sometimes not financially capable of paying what’s owed. After receiving an IRS notice regarding the payment of back taxes, some choose not respond to the notice as a means of avoiding payment.

It’s critical to remember that even though the IRS encourages full payment of any tax debt, there are payment plans that reduce the debt amount. Therefore, even if taxpayers cannot afford to pay the full tax debt amount, they should respond to any notices and inform the IRS of their financial situation.

Achieving IRS Debt Reduction

The two payment plans for debt reduction that many taxpayers use to resolve back taxes are:

• Offer in Compromise
• Partial Payment Installment Agreement

Qualifying for these payment plans is difficult because of their strict eligibility requirements. These payment plans are not for everyone. Taxpayers that have resources only to meet basic living needs should apply for reduction offers.

Before approving a tax reduction plan, the IRS considers individual’s income from all sources, liabilities, and assets. If selling an asset can pay the tax debt without pushing the taxpayer into a financial crisis, the IRS may ultimately levy that property. The IRS may elect to not take collection action if it will mean creating a financial hardship for the individual.

Installation of an IRS Debt Reduction Plan

Those taxpayers that actually are unable to pay their full tax debt may find relief through a reduction plan. After evaluating the taxpayer’s financial situation, the IRS will determine the amount to be paid. The reduced amount can either be paid in a lump sum or in installments.

If a taxpayer does not fulfill the payment plan requirements after it has been set up, then the IRS terminates the plan. Following termination of a plan, the taxpayer can get it reinstated if he or she can provide a valid reason for failing to comply. If the taxpayer defaults on a plan, does not apply for reinstatement and does not obtain a new payment plan, the IRS begins collection efforts.

Instead of avoiding IRS notices, it’s beneficial for taxpayers to attempt a debt reduction and resolve their tax debt permanently. This will help them to avoid collection actions, as well as IRS penalties and interest.