Tax Debt

Tax debt is different from consumer debt - the IRS has powers no other creditor has (wage levy, bank seizure, property liens without a lawsuit). But they also have official settlement programs. Here's what exists and when to use it.

Important: Get Professional Help for Tax Debt

Tax debt resolution has specific IRS procedures, forms, and qualification criteria. The guidance below is an overview. For amounts over $10,000, consult a tax professional (CPA, enrolled agent, or tax attorney). Beware of "tax relief" companies - many charge high fees for programs you can access directly through irs.gov for free.

IRS Resolution Programs

Offer in Compromise (OIC)

The IRS may accept less than the full amount owed if you can prove you can't pay the full debt based on your income, expenses, and asset equity. Acceptance rate is roughly 40%. Apply on Form 656. You can calculate your reasonable collection potential at irs.gov/oic before applying.

Installment Agreement

Pay over time in monthly installments. Streamlined installment agreements (under $50,000, pay within 72 months) are available online without full financial disclosure. For larger amounts, a Collection Information Statement (Form 433-A) is required.

Currently Not Collectible (CNC)

If your income doesn't cover basic living expenses, the IRS can place your account in CNC status - temporarily stopping collection. The debt doesn't go away and interest keeps accruing, but no enforcement actions. The IRS reviews CNC status periodically.

Penalty Abatement

If you have reasonable cause (illness, natural disaster, bad IRS advice), the IRS may waive late filing and late payment penalties. First-Time Penalty Abatement is available if you have a clean compliance history for the prior 3 years - no prior penalties, filed all returns, paid or arranged to pay any tax due.

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