Navigating the IRS Tax Debt Relief Program: A Step-by-Step Guide

The Internal Revenue Service (IRS) is responsible for collecting taxes and enforcing tax laws in the
United States. While most taxpayers strive to comply with their tax obligations, unforeseen circumstances
such as job loss, medical emergencies, or natural disasters can lead to accrued tax debt. This can be a
daunting situation for individuals and businesses alike, as failure to pay taxes can result in penalties,
fines, and even legal action.

Navigating the IRS Tax Debt Relief Program: A Step-by-Step Guide
Navigating the IRS Tax Debt Relief Program: A Step-by-Step Guide

Understanding Your Options

  1. Offer in Compromise: An Offer in Compromise (OIC) is an agreement between the taxpayer and the
    IRS that allows the taxpayer to settle their tax debt for less than the full amount owed. This option is
    typically only available if paying the full amount would cause financial hardship or if there is doubt as to
    whether the taxpayer can ever pay off the debt. To be eligible for an OIC, taxpayers must meet certain
    requirements such as being current with all filing and payment requirements and not involved in any
    bankruptcy proceedings.
  2. Installment Agreement: An Installment Agreement (IA) allows taxpayers to make monthly payments
    towards their tax debt over a period of time instead of paying it all at once. This option may be suitable
    for those who cannot afford to make a lump-sum payment but have enough income to make regular
    payments towards their debt.
  3. Currently Not Collectible Status: If you are unable to pay your taxes due to financial hardship or other
    extenuating circumstances, you may be able to request Currently Not Collectible (CNC) status from the
    IRS. This means that the IRS will temporarily suspend collection activities, such as wage garnishment or
    bank levies, until your financial situation improves.

Filing an Offer in Compromise

Step 1: Determine Your Eligibility
Before filing an OIC, it is important to determine if you are eligible for this option. The IRS considers
several factors when evaluating an OIC, such as your current income, assets, expenses, and potential
future earning capacity. You must also be up-to-date with all of your tax filings and payments before
submitting an offer.

Step 2: Gather Necessary Documents
Once you have determined your eligibility for an OIC, the next step is to gather all necessary documents
and information. This may include bank statements, pay stubs, proof of expenses, and any other relevant
financial documents that support your offer amount.

Step 3: Complete Form 656
Form 656 is the official application for an OIC. It requires detailed information about your financial
situation and reasons why you are unable to pay your full tax debt. Be sure to carefully fill out all sections

of the form and provide supporting documentation where required.

Step 4: Calculate Your Offer Amount
To calculate your offer amount, use Form 433-A(OIC), Collection Information Statement for Wage
Earners and Self-Employed Individuals or Form 433-B(OIC), Collection Information Statement for
Businesses. These forms will help determine how much you can realistically afford to pay towards your
tax debt.

Step 5: Submit Your Offer
Once you have completed all necessary forms and gathered all required documents, it’s time to submit
your offer package to the IRS. You can either mail it in or submit it electronically through the Online
Payment Agreement tool on the IRS website.

Step 6: Wait for a Response
The IRS typically takes several months to review and process an OIC. If your offer is accepted, you will
receive written confirmation from the IRS outlining the terms of the agreement. If your offer is rejected,
you have the option to appeal the decision.

Step 7: Fulfill Your Obligations
If your OIC is accepted, it is important to fulfill all obligations outlined in the agreement. This may include
making timely payments and filing and paying taxes on time for five years after acceptance.

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Setting Up an Installment Agreement

Step 1: Determine Your Eligibility

Before proceeding with setting up an installment agreement, it’s important to first determine if you are
eligible. Generally, individuals who owe less than $50,000 in combined taxes, penalties and interest are
eligible for an installment agreement. However, if you owe more than $50,000 or have already defaulted
on a previous installment agreement, you may still be able to set up a payment plan but will need to
provide additional information and documentation.

Step 2: Gather Necessary Documents

To set up an installment agreement with the IRS, you will need to gather certain documents including:

A completed Form 9465 (Installment Agreement Request)
A completed Form 433-F (Collection Information Statement)
A copy of your most recent tax return

Any other relevant financial documents such as pay stubs or bank statements

Having these documents ready beforehand can help streamline the process and ensure that all
necessary information is included.

Step 3: Choose Your Repayment Plan

When setting up an installment agreement, there are three main repayment plans available:

  1. Guaranteed Installment Agreement: If you owe less than $10,000 and can pay off your taxes within
    three years, this is typically the easiest option. The IRS must accept this type of plan as long as all
    requirements are met.
  2. Streamlined Installment Agreement: If you owe between $10,000-$50,000 and can pay off your taxes
    within six years (72 months), this may be a good option for you.
  3. Non-Streamlined Installment Agreement: If you owe more than $50,000 or cannot pay off your taxes
    within six years, this is the type of plan you will need to set up. This plan requires additional information
    and documentation and must be approved by the IRS.

Step 4: Submit Your Request

Once you have determined your eligibility and chosen a repayment plan, you can submit your request for
an installment agreement. This can be done online through the IRS website or by mailing in your forms.
Be sure to include all necessary documents and information to avoid any delays or denials.

Applying for Currently Not Collectible Status

Step 1: Determine if You Qualify
The first step in applying for CNC status is determining if you meet the qualifications. The IRS will
consider placing your account into CNC status if you can prove that paying your taxes would cause
financial hardship and prevent you from meeting basic living expenses. This includes providing
documentation of your income, assets, and monthly expenses.

Step 2: Gather Necessary Documents
To support your claim of financial hardship, you will need to provide certain documents to the IRS. These
may include bank statements, pay stubs, utility bills, and any other relevant financial records. It is
important to be thorough and organized when gathering these documents as they will play a crucial role
in determining whether or not you qualify for CNC status.

Step 3: Fill Out Form 433-F
Form 433-F is used to gather information about an individual’s financial situation. This form is required
when applying for CNC status and must be filled out accurately and completely. It outlines details such as
income sources, employment information, assets owned, monthly household expenses, and more.

Step 4: Submit Your Application
Once you have completed the necessary forms and gathered all supporting documents, it’s time to
submit your application for CNC status. You can either mail or fax your application along with all required
documents to the address listed on Form 433-F.

Step 5: Wait for a Decision
After submitting your application, it typically takes the IRS several weeks or even months to review and
make a decision. During this time, it is important to continue making payments if you are able to do so. If
your application is approved, you will receive a notification letter outlining the terms and conditions of
your CNC status.

Step 6: Maintain Your Status
If your CNC status is approved, it is crucial to maintain it by staying current on all tax filings and paying
any new taxes owed in a timely manner. Failure to do so can result in the IRS revoking your CNC status
and resuming collection activities.

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