In the first part of this post, we discussed two possibilities for getting your tax bill paid. One possibility is to take out a personal loan so you can pay Uncle Sam. Another is to set up a short-term payment plan.
In your particular situation, however, neither one of those options may be feasible. You may have tax debt that you are unable to pay in full, even within the 120 days allowed for a payment plan.
In this post, we will discuss two more options. One is applying for an installment agreement. Another is negotiating with the IRS for an offer in compromise (OIC) that resolves your tax debt for less than the full amount owed.
An installment agreement is a way to pay your taxes through a series of payments that go beyond the 120-day window for a short-term payment plan. This can be a good option, especially if you aren't eligible for an offer in compromise that would take care of your tax debt for less than the full amount owed.
There are, however, certain eligibility requirements for an installment agreement. For one thing, you must be current on all of your filing obligations. If you have unfiled tax returns from a previous year, you need to get those filed. And if you are going through bankruptcy, you will not be eligible for an installment agreement.
Offer in compromise
An offer in compromise (OIC) gives you a chance to settle up with the IRS for less than the full amount of tax debt that you owe. Depending on your circumstances, it can be a welcome opportunity to get out from under tax debt.
To be sure, not everyone is eligible for an OIC. But in the last few years, the IRS has been more open to accepting these offers than in the past. In 2014, the acceptance rate was 40 percent, up from 38 percent in 2012.
You will have to show the IRS that you are unable to pay the full amount of the taxes you owe, either through a lump sum or in installments. In order to sign off on this, the IRS will analyze the reasonable collection potential (RCP) of your debt. RCP is based on asset value and ability to make future payments.
In any upcoming post, we will discuss how far back the IRS can go in trying to collect tax debt. For now, though, our point is simply that you have payment options.