Do you have a balance due to the IRS that you believe you owe but cannot afford to pay back? Would even a monthly payment plan leave you struggling to meet your necessary monthly costs such as food and rent? There may be other options.
If you received a notice that you owe and you feel the amount is accurate, the worst thing you can do is nothing at all. Failure to respond to written notices from the IRS may result in collection action, including bank levies and wage garnishment. While many people are intimidated by the IRS, there are often options available to taxpayers, including making no payment at all. These are called “collection alternatives.” Here are three popular options for struggling taxpayers who do not have the immediate ability to pay:
Currently not collectible (CNC)
If your income is close to the amount you spend every month for necessary living expenses such as housing and utilities, or you do not have enough monthly income to cover your bills, you can request CNC status from the IRS.
Unfortunately, the balance will remain and interest and penalties will accrue. The status may change if you experience a change in income, and the IRS may review your account annually to see if CNC should continue. For example, the IRS will look for increases in income on your filed returns. If you owe more than $10,000, and the IRS approves your request for CNC status, the tax lien will be filed. Note that the statute of limitations on a tax debt is 10 years from the date of assessment. If the account has been placed into CNC and you have no change in ability to pay, the balance due will become uncollectible after the 10 years has ended.
Installment plan agreement (IPA)
If you have sufficient income to pay your monthly necessary living expenses and have some income left over at the end of the month (called “discretionary income”), you will likely qualify for an installment plan agreement or IPA. If you owe less than $25,000, you can request a “streamlined installment agreement.” The IRS requires less paperwork and fewer qualification rules than the OIC described below. The IRS will request only that employment and banking information be submitted with the agreement request. The IRS will not file a tax lien if you owe less than $25,000. If you owe between $25,000 and $50,000, no tax lien will be filed if you agree to make monthly payments with direct debit from your bank account. You can request this agreement by phone, with a Form 9465 (installment agreement request), or by using the IRS online payment agreement tool. If you owe more than $50,000, requesting an IPA can be a bit more complicated. If your tax debt is over $50,000, visit Additional Information on Payment Plans (from IRS.gov).
Offer in compromise (OIC)
An OIC may be available to you if you (a) have little to no income left over every month after you pay your necessary living expenses, and (b) have small value in assets. If the value in assets such as a retirement account or home equity is low, you have few assets, little monthly income, and few or no prospects for future income, you may want to consider requesting an OIC. An OIC allows you to settle the tax liability for less than the full amount owed. You may qualify if you cannot pay the tax in full with the value of your assets, or by paying a monthly agreement with your discretionary monthly income, before the 10-year collection statute expires.
For other collection alternatives and more information, see Collection Alternatives – What You Can Do (from IRS.gov).
If you have questions or need assistance requesting a collection alternative, call the tax unit at LSNJ at 888-LSNJLAW.
This information last reviewed: Mar 30, 2021