I owe the IRS more money than I can pay. What are my options?

When you cannot full-pay your federal tax debt within 180 days of the date of the first billing notice, many dealings with the IRS will begin with an analysis of your income and certain allowable expenses from which the IRS will determine the amount of monthly income available to pay your total federal tax debt. This process takes into account monthly income & expenses and the equity in the taxpayer’s assets.

The outcome of the income analysis will include one or more of the following possibilities:

Installment agreement.

If there is positive monthly income & IRS can collect the full balance due from monthly payments they will insist on an installment agreement with those terms.There are three variations of installment agreements do not require submission of financial information:
  • If the total of all taxes you owe is less than $10,000 you will automatically qualify for a 36-month installment.
  • If the debt is less than $50,000 the taxpayer will usually qualify for a “streamlined” installment agreement with payments of up to 72 months or an amount that will pay in full the debt by the expiration of the 10-year statute of limitations for collections.
  • For a debt of between $50,001 and $100,000, the IRS will grant an installment agreement without the need to submit financial information if the amount or the payment will pay the debt in full with 84 months or before the expiration of the collection statute of limitations and the payments are made by direct debit or payroll deduction. Submission of financial information is not required if the payments are made by direct debit or payroll deduction.
In the following circumstances financial information will be required:
  • The total debt is more than $100,000.
  • The IRS can also agree to a monthly payment amount that will not pay the full amount you owe before the statute of limitations for collections expires.
  • Currently not collectible status. If there is no income or equity in assets available to pay taxes, the IRS usually will classify the account as currently not-collectible. That status will be reviewed annually and reactivated if reported income exceeds a threshold amount (that IRS won't disclose). 
Offer in compromise

An offer in compromise is feasible if you are only able to pay an amount that is less then the total yu owe. That mount is a combination of the equity you have in your assets, valued at 80% of fair market value, plus a multiple of your monthly income available to pay federal tax debts (see above). 

Important. The offer in compromise process is usually not a negotiation where the "bird-in-the-hand" concept might apply.