Millions of Americans owe taxes they simply cannot afford to pay. When the IRS balance grows larger than your income or assets — or when penalties and interest snowball — taxpayers often panic, ignore notices, or delay taking action.
But here’s the truth → The IRS has multiple relief programs specifically designed for people who cannot pay their tax debt.
📘 References:
- IRS Collections Overview
- IRS Payment Plan Options
- Offer in Compromise
- IRS Temporary Hardship (CNC) Guidelines
If You Cannot Pay Your Tax Debt, The IRS Has Relief Options
The IRS does not expect all taxpayers to pay their debt in full immediately. In fact, IRS policy explicitly requires the agency to offer viable alternatives to those who cannot afford full payment.
These relief options are designed to align with your financial situation and include:
- Payment Plans (Installment Agreements)
- Hardship Relief (Currently Not Collectible status)
- Compromise Options (Offers in Compromise)
- Appeals
- Protections from enforced collection
The specific option that works best for you will depend entirely on your current financial circumstances.
IRS Relief Options: When You Can’t Pay in Full?
Let’s review each of the IRS relief options.
📌IRS Installment Agreements (Monthly Payment Plans)
If you are unable to pay your taxes in full by the due date, an Installment Agreement (IA) is a primary relief option that allows you to pay your tax debt over an extended period.
- Compliance: Once your payment plan is approved, you must remain current on all future filing and payment obligations for the duration of the agreement.
- Legal Basis: Authorized under IRC §6159, IAs permit the IRS to enter into agreements for either the full or partial collection of your outstanding tax liabilities.
- Key Requirement: To qualify for an IA, you must be current on the filing of all past tax returns and must be making timely estimated tax payments for the current year.
📘 References: IRS Payment Plan Options
📌Offer in Compromise (OIC): Settle Your Tax Debt for Less
The OIC, authorized by IRC §7122, is an IRS program that allows eligible taxpayers to settle their total tax debt for less than the full amount owed.
To be eligible, you must demonstrate one of the following legal grounds:
- Doubt as to Collectibility (Most Common): You lack the assets and income to pay the full amount.
- Doubt as to Liability: You can prove the IRS assessed the tax incorrectly and you do not legally owe the debt.
- Effective Tax Administration (Rarest): Collecting the debt would cause extraordinary economic hardship, even if you could technically afford it.
The IRS determines your eligibility based on your Reasonable Collection Potential (RCP). If your calculated RCP is less than the total amount of tax debt you owe, you may qualify for an OIC. The RCP is calculated as → RCP=Net realizable equity in assets+Future income
The OIC process is highly technical and often requires professional assistance. Mistakes often occur due to:
- Incorrect Financial Disclosures: Misstating or omitting financial information.
- Improper Expense Calculations: Failing to apply the IRS’s national and local standards correctly.
- Missing Documentation: Submitting an incomplete application.
- Ineligibility: Applying when you clearly do not meet the core criteria.
- Default: Failing to meet the terms after the OIC is accepted.
Because of its complexity, this program is best handled with the assistance of professional tax counsel.
📘 References: Offer in Compromise
📌 Currently Not Collectible (CNC) Hardship Status
The Currently Not Collectible (CNC) status is a vital form of relief granted by the IRS when enforced collection would cause economic hardship.
When the IRS places your account in CNC status:
- It stops all enforced collection actions, including levies and wage garnishments.
- It halts the issuance of most collection notices, giving you breathing room.
- It does NOT require you to make monthly payments toward the tax debt.
- It does NOT stop penalties and interest from accumulating.
This relief is often temporary, but it can result in the IRS never collecting the full debt if your financial circumstances do not improve before the collection statute of limitations expires.
To qualify for CNC, you must prove that your financial situation makes payment impossible:
- Financial Distress: Your monthly income must be less than your necessary living expenses (as defined by IRS standards).
- Inability to Pay: You must demonstrate no ability to make monthly tax payments after meeting basic needs.
- Asset Test: You should have no significant equity in assets, or any assets you own must be necessary for your survival (e.g., necessary vehicle, basic household goods).
CNC status is particularly beneficial for taxpayers who are low-income, elderly, disabled, unemployed, or those recovering from a financial catastrophe.
📘 References: IRS Temporary Hardship (CNC) Guidelines
📌 Penalty Abatement: Reducing Your Tax Debt
Penalties often constitute a significant portion of a tax debt. Fortunately, the IRS offers programs for penalty abatement (removal).
You may qualify to have penalties removed if you can demonstrate that the failure to file or pay was due to a reasonable cause and not willful neglect.
The First-Time Abatement (FTA) waiver is a way to remove penalties for late filing or late payment.
To be eligible for FTA, you must satisfy three criteria:
- You have a clean compliance history for the three tax years immediately preceding the penalized year (i.e., you filed on time and had no penalties assessed).
- You must be currently compliant with all filing and payment obligations (or have secured a payment plan).
The Essential Role of a Tax Attorney When You Can’t Pay
When facing overwhelming tax debt, a tax attorney provides crucial legal expertise and negotiation skills, ensuring you secure the best possible resolution while protecting your rights and assets.
Key Ways a Tax Attorney Helps:
- Immediate Enforcement Halt: They quickly intervene, often stopping active levies and wage garnishments.
- Negotiation of Affordable Solutions: They use legal standards to negotiate payment plans that are genuinely affordable and sustainable for your financial situation.
- Expert Financial Preparation: They meticulously prepare your financial disclosures, which are heavily scrutinized by the IRS, to ensure accuracy and favorable presentation.
- Offer in Compromise (OIC) Success: They strategically file Offers in Compromise, maximizing the chances of settling your debt for less than the full amount.
- Penalty Reduction: They work to obtain penalty abatement, which can result in thousands of dollars in savings.
- Error Prevention: They prevent IRS mistakes during the collection process, as IRS collection efforts frequently contain procedural or calculation errors.
- Legal Protection: They protect you legally, acting as an intermediary to prevent you from making damaging statements to collection agents that could be used against you.
📘 References: Form 2848 – Power of Attorney
If You Can’t Pay Your Tax Debt, We Can Help.
If you are currently struggling with unpaid IRS bills, facing aggressive enforcement like wage garnishments or bank levies, dealing with tax liens, receiving threatening IRS letters, or have been denied payment plans/OICs due to financial hardship, you need legal representation right away.
Pelham PLLC provides comprehensive tax defense:
- Stop Enforcement: We immediately intervene to halt all IRS collection activities.
- Negotiate Terms: We secure fair, affordable payment terms tailored to your financial reality.
- Expert Representation: We defend your case directly in front of IRS Collections and Appeals officers.
- Relief Programs: We pursue penalty relief, prepare and file strong Offers in Compromise (OICs), and secure hardship protection.
We protect your income, assets, and future. There are options available, and we will help you pursue the one that protects you best.
Contact us today for a confidential tax relief consultation.
FAQs
Can the IRS take money if I can’t afford to pay?
Yes — unless you secure a payment plan, CNC status, or appeal relief.
Can I really settle my tax debt for less?
Yes. It’s called an Offer in Compromise.
What happens if I ignore IRS bills?
Levies, liens, and enforced collection.
Will the IRS work with me if I’m broke?
Yes — that’s what CNC status is for.
Should I call the IRS myself?
No. Everything you say can affect your case.
