Tax Settlements & Payment Plans

The IRS offers numerous settlement options for taxpayers who cannot pay their taxes in full. Although these options can be difficult to understand and hard to qualify for, there are generally tax settlements available for any possible tax debt situation.  In some cases, taxpayers may be eligible for tax settlements that result in payments significantly less than the amount owed by filing an Offer in Compromise.  In other instances, the IRS or State Tax Agency may agree to accept low monthly payments through an Installment Agreement or to temporarily suspend collection activities on an account by classifying it as “currently not collectible.”

Selecting a competent tax settlement firm is a critical step in the tax debt resolution process and, unfortunately, much of the information advertised by some tax resolution companies is false or misleading.

Each tax debt situation is unique and each tax settlement plan is different.  A comprehensive tax resolution plan may involve using a variety of settlement tools to resolve the entire tax debt. Some of the most common tax settlement options include:

Installment Agreement – This is an agreement with the IRS or State Tax Agency to pay an outstanding tax balance by making monthly payments.  Payment amounts are generally determined by a taxpayer’s ability to pay. Installment Agreements are one of the easier tax settlement options to qualify for since they do not involve a reduction of the total amount of taxes, penalties or interest owed.  The drawback of an Installment Agreement is that penalties and interest generally continue to accrue until the balance is paid in full.

Partial Payment Installment Agreement – This is an agreement with the IRS or State Tax Agency to accept a partial payment for an outstanding tax liability. The settlement amount is paid in monthly installments similar to a traditional Installment Agreement except that there is a reduction in the total amount owed. A Partial Payment Installment Agreement has the advantage of being be easier to obtain than an Offer in Compromise while it still settles the debt for less than the full amount owed.  Acceptance is of a Partial Payment Installment Agreement is based on a number of criteria including the taxpayer’s history of compliance together with their current income and available assets. 

Offer in Compromise –The IRS or State may agree to settle a tax liability for less than the amount owed if they believe the liability cannot be paid in full. An Offer in Compromise is generally the most difficult tax settlement option to obtain but it also provides the largest benefit to the taxpayer.  The IRS or State Tax Agency may consider an Offer in Compromise if they determine a taxpayer is unable to pay the full amount of an outstanding tax debt or there is a doubt as to whether the tax debt is accurate.  Any taxpayer submitting an Offer in Compromise must provide complete and accurate financial information to be used in evaluating the offer.  Collection activities are generally halted while the offer is being considered. While the advertising of many companies seems to be greatly exaggerated, it is true that the IRS and State Agencies regularly accept Offers in Compromise for a fraction of the total amount of the tax debt.

Currently Not Collectible – The IRS agrees that a tax debt is “currently not collectible” and temporarily suspends all collection activity if they determine that a taxpayer cannot afford to settle a tax debt at any time in the near future. This option is good for a taxpayer who may have a temporary situation that leaves them unable to make payments on an Installment Agreement or an Offer in Compromise.  The drawback of the “currently not collectible” status is that all outstanding balances continue to accrue penalties and interest. The IRS or State Tax Agency will regularly review the taxpayer’s financial situation to determine if and when they can begin making payments on the outstanding tax debt. While the “currently not collectible” status does provide some temporary relief,  it does not actually resolve the outstanding tax debt.

Penalty Abatement – Any taxpayer that has an outstanding tax debt knows that the IRS and State Agencies charge penalties and interest for just about everything.  The tax code also provides for tax agencies to abate penalties and interest in certain situations.  Penalty Abatements are commonly granted if the taxpayer has had a medical reason that caused the penalty to be assessed or if the error that caused the penalty was due to the taxpayer’s reliance on the advice of a tax professional. A request for Penalty Abatement may be used in conjunction with one of the other tax settlement options.