Tax Dictionary – Tax Debt Settlement Options
The IRS can take payment directly from your bank account or you can set up payment option if you cannot pay your taxes. You can also find out if you qualify for an offer in compromise — a way to settle your tax debt for less than the full amount or request that we temporarily delay collection until your financial situation improves.
More from H&R Block:
If you can’t pay your taxes, the IRS offers several options. However, the only “settlement” option is the offer in compromise (OIC). An OIC allows you and the IRS to agree to settle your tax liability for less than the full amount you owe. The OIC is mostly for taxpayers who have few assets, low monthly income, and little or no prospects for future income.
If you can pay your tax debt, you won’t qualify for an OIC. You’ll qualify only if you can’t pay all the tax you owe with your assets and/or with monthly payments before the time to collect expires. If you qualify, the amount you pay will be equal to the value you have in assets, plus one or two years of future income, depending on the type of offer selected.
This program is not for people who are experiencing temporary financial distress. Viable businesses and taxpayers with short-term financial hardships are generally not good candidates for the OIC.
IRS.gov has a tool called the OIC Prequalifier that will allow you to put in your financial information and the taxes you owe to find out whether you might qualify. But the OIC calculation is detailed and requires proper valuation of the equity you have in your assets and your disposable income. These calculations have special rules and may require an experienced professional to help.
Get the facts from H&R Block about the widely available but little-known IRS penalty relief option called first-time penalty abatement.
Learn more about notice CP30, why the IRS reduced your refund, and how to address the notice with help from the tax experts at H&R Block.
Learn how to request an IRS payment option, like an extension to pay or an IRS installment agreement, when your business owes taxes and can't pay.
Read the IRS definition of IRS appeals, and get more insight from H&R Block about the two major types of IRS appeals: within the IRS and in the courts.