3 Ways to Get Out of Debt with the IRS
3 Ways to Get Out of Debt with the IRS: Offer in Compromise, Currently Not Collectible, and Payment Plans
If you owe money to the IRS and aren’t sure how to handle it, you're not alone. Many taxpayers find themselves in a difficult situation with back taxes, but there are several options that could help ease the burden. Here’s a breakdown of three ways you can work with the IRS to get out of debt: Offer in Compromise (OIC), Currently Not Collectible (CNC) status, and payment plans.
1. Offer in Compromise (OIC): Settle for Less Than You Owe
An Offer in Compromise is one of the most talked-about options for people looking to reduce their tax debt. With this arrangement, the IRS may allow you to settle your debt for less than the full amount owed—but only if you meet specific criteria.
Who qualifies?
- You must prove that you can’t pay the full debt due to financial hardship.
- The IRS will evaluate your income, expenses, assets, and overall ability to pay before agreeing to an offer.
- If approved, the IRS will settle the debt for an amount they consider fair based on your financial situation.
An OIC can be a lifesaver if you’re unable to pay your full tax debt, but it’s important to note that the process is complex, and you’ll need to be diligent in providing the necessary information.
2. Currently Not Collectible (CNC): Temporarily Halt Collection Efforts
If you’re experiencing financial hardship but don’t qualify for an Offer in Compromise, you might be eligible for Currently Not Collectible (CNC) status. This is a temporary solution where the IRS stops all collection activities, including wage garnishments, bank levies, and tax liens.
How does CNC work?
- You must demonstrate to the IRS that you’re unable to make payments due to severe financial hardship (e.g., you have no income, are living paycheck to paycheck, or have high medical expenses).
- While your debt won’t be forgiven, collection efforts will be paused for a set period—usually until your financial situation improves.
- Keep in mind, interest and penalties continue to accrue during this time, but CNC can give you some much-needed breathing room.
This is a good option for individuals struggling financially who need time before they can pay back the debt.
3. Payment Plan: Pay Off Your Debt Over Time
For many, the most straightforward way to resolve tax debt is to set up a payment plan with the IRS. A payment plan allows you to pay your tax debt over time, with monthly payments based on your ability to pay.
Types of payment plans:
- Short-Term Payment Plan: If you can pay off your debt within 120 days, the IRS may offer a short-term plan without charging you a setup fee.
- Long-Term Installment Agreement: If you need more time to pay, you can apply for a long-term installment agreement (or monthly payment plan). The IRS will work with you to determine a payment amount that fits your financial situation.
Payment plans are generally easier to set up and less complicated than other options, but they do require you to stay on track with your payments. If you miss a payment, the agreement may be canceled, and the IRS could resume collection efforts.
What’s the Best Option for You?
Each of these options has its pros and cons, and the right choice depends on your specific situation. The best way to determine which option will work best is by speaking with a tax professional who can evaluate your circumstances and help you navigate the process.
Need Help Resolving Your IRS Debt?
At Tax Resolution Plus, we specialize in helping people like you resolve their tax debt with the IRS. Whether it’s through an Offer in Compromise, Currently Not Collectible status, or a payment plan, we’ll guide you every step of the way. Contact us today for a consultation and let’s discuss the best path forward.