Large Balance Owed to the IRS

I have a large balance owed to the IRS. Currently, I am unable to pay it. What can I do?

There are four options here.

The first option is that you are deemed to be Currently Non-Collectible (“CNC”) and you will not have to pay your balance until your financial situation changes.  This is a situation where your current finances do not support a monthly payment. You can establish this status with your representative in person or with Automated Collections (“ACS”) by phone.  You may have to support this determination with financial records.

The second option is called Partial Payment Installment Agreement (“PPIA”). It’s also possible that your finances may support payment of an amount that will not pay the total balance off over the term of the installment plan. For instance, your balance is $75,000 and your payment amount is $250 a month for 60 months.  At the end of the 60th month, the balance owing will still be substantial. If you are at the end of the collection period for federal taxes (typically 10 years), the taxes will “fall off” and you will be free of the indebtedness.

The third option is that you can file an Offer in Compromise (“OIC”). An OIC is a method that allows you to establish the inability to pay your taxes in full based on your assets and available income, which allows the IRS to reduce your taxes accordingly. Typically, the IRS asks for 80% of your net assets, plus your monthly disposable income times a multiplier.  The multiplier runs from 12-24. The process of filing on OIC requires filing Forms 656 and 433-A OIC, supporting schedules, submission of a processing fee, currently $186, and a required 20% down payment of the Offer amount. An OIC is typically processed approximately 6 to 12 months after submission.

The fourth is a bankruptcy filing that will discharge the taxes. Under the bankruptcy code federal and state taxes are dischargeable if they meet the following criteria:

1)  The due date for filing the taxes was at least three years ago; and

2) The tax returns were filed at least two years ago; and

3) The tax assessment is at least 240 days old; and

4) The tax return is not fraudulent.