What Are My Options If I Owe the IRS?

1. Pay the IRS in Full

If you have the ability to pay the balance without creating a serious financial hardship, paying the IRS in full is often the least expensive option.

Interest and applicable penalties generally continue to accrue while a tax balance remains unpaid.

2. Set Up an IRS Payment Plan

You may be able to establish an IRS installment agreement that allows you to pay your tax debt over time.

The type of agreement available depends on factors including how much you owe and your financial circumstances.

Some taxpayers can establish relatively straightforward payment arrangements, while others may need to provide detailed financial information to the IRS.

3. Apply for an Offer in Compromise

An Offer in Compromise (OIC) may allow certain taxpayers to settle an IRS tax liability for less than the full amount owed.

However, not everyone qualifies.

The IRS generally evaluates your income, allowable living expenses, assets, equity, and future ability to pay when determining whether an offer is appropriate.

“Pennies on the dollar” promises

Be cautious of advertisements suggesting that everyone with IRS debt can settle for “pennies on the dollar.” A legitimate analysis should determine whether you are actually a candidate before promising a settlement.

4. Request Currently Not Collectible Status

If paying the IRS would prevent you from meeting necessary living expenses, you may potentially qualify for Currently Not Collectible (CNC) status.

CNC does not erase the tax debt.

Instead, the IRS generally suspends active collection efforts while you are experiencing qualifying financial hardship. Interest and applicable penalties can continue to accrue, and the IRS may periodically review your financial situation.

5. Request Penalty Relief

Some taxpayers may qualify for relief from certain IRS penalties.

Depending on the circumstances, potential relief may include the IRS's First Time Abate administrative waiver or reasonable-cause relief.

Penalty relief generally does not eliminate the underlying tax or applicable interest on that tax.

6. Review Whether You Actually Owe the Amount Assessed

Before entering a resolution program, it can be worth reviewing how the balance arose.

For example, the IRS may have:

Filed a substitute return
Adjusted a previously filed return
Disallowed a credit or deduction
Assessed additional tax after an examination
Applied payments incorrectly

In some situations, addressing the underlying assessment may be more appropriate than immediately negotiating a collection arrangement.

What If I Haven't Filed My Tax Returns?

If you owe the IRS and also have unfiled tax returns, filing compliance will usually need to be addressed as part of the resolution process.

Before discussing settlements or payment arrangements, a tax professional should determine:

Which returns are missing

What you actually owe

Whether the IRS has already made assessments

Whether you are currently facing collection activity

Which resolution options you realistically qualify for

Which IRS Tax Resolution Option Is Best?

There is no single solution that works for everyone.

Someone who earns a strong income but owes $20,000 may need a very different strategy from someone who owes $100,000 and cannot meet their basic living expenses.

The appropriate strategy may involve an installment agreement, Offer in Compromise, Currently Not Collectible status, penalty relief, correcting an assessment, or a combination of strategies.

Get Help With IRS Tax Debt

Valoria Consulting provides IRS tax resolution and tax advisory services for individuals and businesses dealing with federal tax liabilities.

Rather than promising a settlement before reviewing your finances, we evaluate your tax account, financial circumstances, and available resolution options to determine an appropriate strategy.