5 Solutions to Consider When You Can’t Afford to Pay Your IRS Tax Debt?

Dealing with IRS tax debt can be overwhelming, but you don’t have to figure out solutions on your own.

I’ve specialized in tax law and business advisory for over 15 years, and I’ve helped individuals and entrepreneurs navigate resolving tax debt problems when they couldn’t afford to pay in full.

Many people face this challenge, and there are solutions available to help you manage it effectively. Here’s a breakdown of what you can do if you find yourself unable to pay your IRS tax debt:

What You Need to Know:

  • Be Kind to Yourself: Facing tax debt is stressful, but taking steps to resolve it is a big achievement.
  • Consider Professional Help: If managing this feels overwhelming, seeking professional advice can be a smart move.
  • Financial Analysis is a Must: You’ll be required to create an accurate monthly budget, this will allow you to clearly explain your financial situation.
  • Tax Return Filing Compliance: Ensure all tax returns are filed, especially the most recent six years.
  • IRS Forms: Choose the appropriate IRS form based on the option you ultimately pursue.

Timeline: The IRS typically has 10 years to collect tax debt from you. The Collection Statute Expiration Date (CSED) marks the day your tax debt is no longer collectible.

State Taxes: If you also owe state taxes, it’s important to know that each state operates differently – in some cases similar options may also be available at the state level.

Your 5 Solutions:

  1. Partial Payment Installment Agreement (PPIA):
    • Ideal if you’re able to prove that you can’t pay the total balance due before the CSED. You will need to provide an accurate financial analysis that shows your monthly cash flow (income and expenses). With this analysis, you can request a lower monthly payment, even if it means the full debt won’t be paid off by the CSED.
  2. Tiered Payment Plan:
    • Ideal if you expect your financial situation to improve, however, your ability to qualify for this will be dependent upon your total tax debt and CSED.  
    • With a tiered payment plan, you can start the first year with a lower payment and set your payment plan to increase incrementally over the next two-years. By the third year, you’ll be in a steady payment plan until you’ve paid the tax debt in full. 
  3. Payment Plan with a One-Year Grace Period:
    • Ideal if your expenses exceed what the IRS deems as “allowable” and you need some time to adjust your finances to make higher tax payments easier to manage.
    • The one-year grace period allows for lower payments in the first year, before higher payments are required in the second year.
  4. Hardship Status (Currently Not Collectible – CNC):
    • Ideal if you’re able to prove that your “allowable”/necessary living expenses exceed your income, making it impossible to pay the IRS without causing financial harm.
    • The IRS recognizes that this is a reality for many people, so they will generally grant this request and stop all collection action, e.g. bank levies and wage garnishments. However, tax liens will be filed and the IRS will typically request an updated review of your financials every two years or so.
  5. Offer in Compromise (OIC):
    • Ideal if you qualify for a hardship or PPIA, as your offer amount is based on your income, expenses, assets, and liabilities.  
    • Allows you to settle your debt for less than the total amount owed if paying the full amount would cause financial hardship.

Conclusion:

Remember, you have options when dealing with IRS tax debt. Whether you opt for a structured payment plan, hardship status, or an offer in compromise, each route has its benefits depending on your financial circumstances. Don’t hesitate to seek help if you need it; understanding these options and taking action is the first step toward resolving your tax debt problems.

If you’re unsure which option is best for you or need further guidance, consider scheduling a free consultation to discuss your situation. Your path to financial stability starts with understanding and choosing the right solution for your needs.

Let me know in the comments which payment plan you find most suitable for your situation!

Talk soon,

Anisha

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