Owing a tax liability to the IRS is a serious federal matter that requires prompt and informed action. U.S. tax law provides multiple structured mechanisms for taxpayers who cannot pay their balance in full, including payment arrangements, negotiated settlements, and temporary relief measures. These programs—created and administered by the IRS—are designed to promote voluntary compliance while ensuring the government can legally collect outstanding obligations.
Filing Obligations and Partial Payment Requirements
Even when a taxpayer is unable to pay the full amount owed, the IRS requires that the tax return be filed on time and that the taxpayer pay as much as possible. The IRS explicitly states that failing to file and failing to pay “only makes matters worse,” as penalties and interest continue to accrue.
Filing protects the taxpayer from additional statutory penalties and demonstrates good-faith compliance under federal tax law.
Installment Agreements (Long-Term Payment Plans)
Taxpayers unable to pay their obligation immediately may request an Installment Agreement, which allows monthly payments approved by the IRS.
Individuals who owe less than $50,000 in combined tax, penalties, and interest may apply online. All required tax returns must be filed before the IRS will approve the agreement.
Key legal considerations:
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- Interest and penalties continue to accrue until the balance is paid.
- Defaulting on the agreement may result in termination by the IRS.
- Applicable setup fees may vary depending on the payment method.
Offer in Compromise (Settlement for Less Than the Amount Owed)
An Offer in Compromise (OIC) permits eligible taxpayers to settle their liability for less than the full amount when paying in full would create economic hardship or when the taxpayer lacks the ability to satisfy the debt within a reasonable period.
The IRS examines the taxpayer’s income, necessary living expenses, and asset equity to determine reasonable collection potential.
Not all taxpayers qualify, as the IRS requires that other payment options—such as an Installment Agreement—be considered first.
“Currently Not Collectible” Status (Temporary Suspension of Collection)
If a taxpayer cannot meet basic living expenses, the IRS may designate the account as Currently Not Collectible (CNC).
This status does not eliminate the debt; it temporarily halts enforcement actions, such as levies, due to verified financial hardship. Interest and penalties continue to accumulate during the CNC period.
Legal Consequences of Ignoring an IRS Liability
Failing to address a tax debt may result in significant legal and financial consequences, including:
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- failure-to-file penalties,
- failure-to-pay penalties,
- daily interest charges,
- federal tax liens,
- wage garnishments (levies),
- seizure of certain assets,
- offset of future tax refunds.
The IRS confirms that interest and penalties continue until the balance is fully satisfied.
Relevance to Taxpayers
Timely filing and proactive communication with the IRS safeguard the taxpayer’s legal standing and reduce the risk of enforcement actions. Using IRS-approved remedies can substantially reduce the long-term financial impact by limiting interest and penalty growth.
Programs such as Installment Agreements, Offers in Compromise, and CNC status exist precisely for taxpayers experiencing hardship. Entering into a formal payment arrangement can prevent liens, levies, and other collection actions that may otherwise occur.
Understanding and selecting the appropriate remedy allows taxpayers to manage their obligations effectively and lawfully.
We Can Help!
A tax debt owed to the IRS requires serious attention, but it is manageable with the proper legal approach. Federal tax law offers formal mechanisms—including payment plans, negotiated settlements, and temporary hardship status—to help taxpayers resolve outstanding liabilities. The most important steps are to file on time, explore available legal remedies, and seek professional advice when necessary.
If you have an outstanding debt with the IRS, contact our office for a confidential consultation today.
