Introduction
If you are unable to pay your taxes when they are due, the IRS provides several options including paying your taxes over time. If you can afford to pay your tax liability in full over 6 years or less, you can do so with little to no substantiation.
If you cannot afford to full pay your taxes over the period the IRS has to collect (usually 10 years from the date the tax was assessed), you can relax knowing you are still okay. The IRS will collect based not on what you owe but rather on what you are able to pay.
How it Works
If you can only afford to pay a portion of what you owe, you can claim hardship. In fact, if you can prove you only earn enough to cover your necessary and reasonable living expenses, you can pay nothing.
Just ‘claiming’ you cannot afford to pay is not enough. You need proof. This includes proof of expenses such as invoices or billing statements. It also includes proof of payments such as canceled checks or bank statements. Simply owing the expense is not enough.
The process begins with completing a collection information statement (IRS form 433-A, 433-F or 433-B). These forms are similar to loan applications. In addition to providing general information such as name, address and telephone number, you will also need to provide income, expense, asset and liability details.
Assuming you can show that after accounting for your ‘take home’ earnings, your disposable income is less than the amount you need to full pay your liability, you can and will pay less. If these payments remain less over the collection period, you have successfully completed a partial pay installment agreement.
Partial Pay Installment Agreements vs Offers in Compromise
Offers in compromise allow you to settle your tax liability for an amount less than you owe. A partial pay installment agreement does the same. So why choose one over the other?
Offers in compromise are more expensive to implement. They also are harder to get accepted. On the other hand, partial pay installment agreements rely on the taxpayer remaining in a hardship condition over the entire collection period. This can be 10 years or more (see Offers in Compromise for events that extend the statute).
Offers in compromise toll (freeze) the collection period for the time the offer is under consideration. If the collection period only has a few years remaining, the partial pay installment agreement is almost always the preferred solution.
If a taxpayer is in a tough spot financially but plans to be in a better position in a few years, an offer in compromise may be the better solution.
In short, available options must be weighed. This is where a seasoned professional is worth their weight in gold.
Get Help Now
The Tax Resolution Institute team has over 40 years’ experience when it comes to providing successful results for our valued clients. If you need back tax debt relief, please call (800) 658-7590 or email us at info@taxresolutioninstitute.com to get the help you need.
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