Back Taxes Resolution: Paying Less than What You Owe

Last updated on July 18, 2023

For those taxpayers that do not have the financial capability to pay their entire tax debt amount, the IRS has designed payment plans to help them resolve their back taxes. If you can only resolve your tax debt by paying a reduced amount in tax debt, you may consider payment plans such as Offer in Compromise and Partial Payment Installment Agreement.

Under Offer in Compromise, you pay a reduced tax debt amount to resolve your tax debt permanently. To ascertain your paying ability, the IRS requests you to share your financial details with them. In lesser amounts of tax debts, basic financial information suffices. For larger tax debt amounts, though, the IRS requests a financial statement. Depending on the ability to pay, the IRS reduces the tax debt amount so that the taxpayer can pay it to resolve their case.

Under Partial Payment Installment Agreement, you can pay the reduced tax debt amount in fixed monthly installments. It is essential to check the payment requirements so that you do not default on a plan. Defaulting on an agreement leads to its termination. To reinstall a terminated agreement, the IRS requires the reason for the non-compliance.

You can successfully resolve your tax debt even if you cannot pay your full tax debt. Early resolution helps to avoid the damaging IRS collection actions, and the piling up of IRS penalties and interest.