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Personal Finance Tax Relief

How to Settle Tax Debt With the IRS

Nothing in life is certain but death and taxes, or so the saying goes. But given that the IRS does offer ways to eliminate your tax debt, it’s not entirely true. While settling your tax debt with the IRS is challenging—and you may not be able to eliminate all your debt—the IRS does offer several ways to settle it.

If you owe back taxes to the IRS, you’ll want to explore the agency’s multiple options for debt settlement. Some of these options allow you to reduce your total tax liability; others spread the balance out over time, making repayment more manageable.

Wondering how to settle with the IRS? In our guide below, we’ll walk you through all your options for tax debt settlement—and which one is right for you.


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What happens if I don’t settle my IRS tax debt?

If you owe back taxes and don’t try to pay them or settle them, the IRS will get more aggressive.

First and foremost, you’ll owe a late payment penalty if you don’t pay your full tax debt by Tax Day. The failure to pay penalty adds up over time—eventually maxing out at 25% of your unpaid taxes. 

In addition, the amount you owe will earn interest, meaning the longer you wait to pay, the more you’ll actually owe.

If you make no effort to settle that outstanding debt, the IRS has several actions it can take to collect what you owe, including:

  • Placing a tax lien on your property, including your car, which can make it more challenging to get credit in the future
  • Seizing property, including your car and home, and garnishing wages through a tax levy to satisfy your debt

Depending on the situation, the State Department is also within its rights to reject your passport renewal application (and revoke your existing passport).

Note: While the IRS does not report tax liens to the three major credit bureaus, they are public record. Lenders doing their due diligence can discover any liens and use that information to reject credit applications.

It is critical to pay your tax liabilities no matter your income level. Ignoring your tax payment obligations can lead to fairly drastic financial hardship due to wage garnishment, seized assets, and plunging credit scores. Ultimately, all of this can impact your employability.

Erin Kinkade


What options do I have for IRS settling?

If you know you have unpaid tax debt or receive a notice of deficiency, don’t panic. You have options to settle with the IRS.

Click the option in the table below to learn how settling with the IRS using this method works.

OptionBest for
Installment agreementIf you can afford your tax debt spread out over time
Partial payment installment agreementIf the payment on a traditional installment plan is out of reach
Offer in CompromiseTax debts far out of reach
Currently not collectible statusShort-term financial hardship
BankruptcyIf you have overwhelming tax and other debts; a last resort

Installment agreement

Installment agreements, also called payment plans, are a way of spreading your tax debt over an agreed-upon, more manageable period—anywhere from a few months to six years. Think of it as a personal loan, but from the IRS.

Generally speaking, there are short- and long-term payment plans:

  • Short-term installment agreement: 90 to 180 days
  • Long-term installment agreement: More than 180 days

How to settle with the IRS using an installment agreement

If you owe the IRS back taxes but need a more manageable payment solution, you can apply for a short-term or long-term payment plan online, by mail, or over the phone:

  • Online: The easiest and fastest method of applying for an installment plan with the IRS is to apply for the payment plan online, using the IRS payment plan application.
  • By mail: Though snail mail takes much longer—especially when it comes to the IRS—you can request an installment agreement via mail. Fill out Form 9465, following all IRS Form 9465 instructions to find the proper address (varies by state).
  • Over the phone: If you feel speaking with an IRS agent about the process would be more helpful, you can call 800-829-1040 for individual tax debt assistance.

Who is eligible for an installment agreement?

You are eligible to apply online for an installment agreement online if:

  • You owe less than $50,000 (for a long-term payment plan).
  • You owe less than $100,000 (for a short-term payment plan).

You can still apply if you don’t meet these requirements by sending in Form 9465.

The IRS offers guaranteed approval for an installment agreement if you owe less than $10,000, have filed on time for the last five years, agree to repay your debt in three years, and can prove you cannot pay your full debt now.

Otherwise, approval is not guaranteed.

Pros and cons of installment agreements

Weigh the pros and cons of payment plans with the IRS:


  • Easier approval than other options

  • Breaks up tax debt repayment into more manageable chunks

  • Easy online application process


  • You’ll still owe late fees and interest

  • There may be fees for setting up the payment plan

  • Missing a payment cancels the arrangement

Partial payment installment agreement

If you have tax debt that you know you will not be able to pay within the 10 years the IRS has to collect—called the Collection Statute Expiration Date (CSED)—an installment agreement isn’t necessarily out of the question.

Instead, you may be able to apply and qualify for a partial payment installment agreement (PPIA) with the IRS. With PPIAs, the IRS agrees to accept smaller payments spread out over an extended period.

The IRS reserves the right to review your finances during that repayment term. If the agency finds that your financial situation has improved, it can increase your payment or begin taking other measures to collect on the original debt.

How to settle with the IRS using a partial payment installment agreement

Unlike a traditional payment plan with the IRS, you can only apply for a PPIA over the phone or by mail.

The IRS will require a comprehensive financial statement (including Form 433-F) demonstrating your inability to pay the whole amount, even over an extended period.

Who is eligible for a PPIA?

Before you can be eligible for a PPIA, you’ll need to use all assets to try and repay your debt. The IRS can also ask that you use the equity in those assets (your home equity, for example) to pay off the balance.

It is much more challenging to be approved for a partial payment installment agreement than it is for a more traditional payment plan.

Offer in Compromise (OIC)

An Offer in Compromise (OIC) is another way to settle your tax debts for less than you owe. However, you’ll make a lump-sum payment upfront (at least 20% of what you’re offering to pay) and repay the rest of the agreed-upon balance in five or fewer payments or over 24 months.

How to settle with the IRS using an Offer in Compromise

When applying for an OIC, you’ll make an offer for what you can comfortably afford to pay (based on your assets, income, expenses, and other financial details), and the IRS will accept or reject it.

To apply, you’ll need to fill out IRS Form 656 and 433-A, pay a $205 application fee, and include an initial offer payment (at least 20% of your total offer).

If accepted, you’ll have two payment options to choose from for settling your agreed-upon debt:

  • Repayment over 24 months
  • Repayment in five or fewer installments (after the initial lump sum)

If your offer is rejected, you’ll have the option to appeal, though this doesn’t guarantee you’ll be successful.

Who is eligible for an OIC?

To qualify for an Offer in Compromise, you must be current on all tax return filings and be able to demonstrate that you cannot repay your full tax liability, even in installments.

You can use this prequalifying tool to see whether you’re a good fit. Per 2022 tax year data from the IRS, only about a third of applications are approved.

Pros and cons of an Offer in Compromise

Weigh the pros and cons of an OIC with the IRS:


  • Ability to settle for less than what you owe

  • Breaks up tax debt repayment into more manageable chunks

  • Stops seizure of assets from unpaid tax debts


  • Roughly a 33% success rate

  • Must be able to make lump-sum payment

  • Lots of paperwork to demonstrate financial hardship

  • May require hiring a tax accountant to help with application

  • $205 application fee

Currently not collectible

“Currently not collectible” (CNC) is an account status option with the IRS. It means you lack the financial capabilities to repay your tax debts and cover your basic living expenses simultaneously.

If you’re approved for CNC status (also called uncollectible status), the IRS will stop all collections attempts, wage garnishments, and levies. Your account will still gain interest and be subject to late penalties.

How to settle with the IRS using currently not collectible status

Technically speaking, you don’t settle with the IRS when you get currently not collectible status. You merely delay payment.

Like other settlement options, your tax returns will all need to be filed to apply for CNC. You will then need to contact the IRS at 800-829-1040 to see whether you’re eligible.

While assessing your case, the agency may request documentation regarding your:

  • Income
  • Employment
  • Debts
  • Monthly expenses
  • Other financial details

The IRS may also ask you to file a Form 433-A.

The agency will review your income annually to see if your financial situation has improved and you can resume repaying your debts. If not, your CNC status will remain, and all collections efforts will stay on hold.

The IRS has 10 years to collect your tax debt after assessment, but certain actions may pause or extend this timeline.

Who is eligible for CNC status?

The IRS will only approve you for currently not collectible status in extreme scenarios where you can demonstrate an inability to pay what you owe for now. The IRS will conduct a thorough review, which means you’ll need a detailed paper trail to prove:

  • You lack the assets or income to pay.
  • You are unemployed—and all unemployment, Social Security, and welfare benefits only help keep you afloat.
  • You make less than is required for basic living expenses.

Certain scenarios where you might consider applying for CNC status include when your finances are affected by:

  • The death of a spouse
  • Divorce
  • Loss of a job
  • Caring for a family member full-time
  • A serious natural disaster

Pros and cons of currently not collectible status

Weigh the pros and cons of CNC status with the IRS:


  • Delays payments entirely (but only temporarily)

  • Avoids garnished wages and asset seizure


  • Interest and fees still accrue

  • Doesn’t eliminate tax debt

  • Difficult to get approved

  • Can impact credit score if IRS files Notice of Federal Tax Lien

File for bankruptcy

As a last resort, you may need to file for Chapter 7 bankruptcy if you are drowning in debts, tax or otherwise. With this type of bankruptcy, you can discharge income tax debts at least three years old. You also have to be current on your tax return filings.

But be careful: Bankruptcy can’t wipe clean all debts—nor does it work with tax liens. If the IRS has already filed a lien against your house, car, or other assets, you’ll need to pay it off (or sell the assets) before it can be removed.

Bankruptcy comes with several costs. You’ll need to pay filing fees, hire a bankruptcy attorney, and potentially pay for bankruptcy counseling classes. On average, it costs between $500 and $3,000.

If you file for bankruptcy, your credit score can drop in a hurry. A person with a FICO score of 680 could lose 150 points in bankruptcy. Someone with a 780 score could lose 240 points.

Ask the expert

Erin Kinkade


If you can’t pay what you owe, it is critical to utilize one of these options in this article and never to ignore the liability. It will not go away. The IRS does not have a statute of limitations to seize past-due taxes, so it can follow you throughout your life.

What is the best IRS debt settlement option for me?

The best IRS debt settlement option depends on your situation:

  • It’s easiest to get approved for an installment plan, but you’ll have to pay back the full amount eventually. This is ideal if you have the means to pay, just not all at once.
  • A partial payment installment plan can be more challenging to get approved for, but you may have more luck than with some of the other options.
  • An Offer in Compromise is the best IRS debt settlement option if you absolutely cannot afford to pay what you owe, but you’ll have a tough time getting approved. It could be a lot of work for no payoff.
  • Applying for currently not collectible status makes sense if you’re unable to pay in the short term but expect to be able to repay your debt after climbing out of whatever temporary financial downturn you’ve found yourself in.
  • Filing for bankruptcy is a last resort. It is never the best IRS debt settlement option; only explore bankruptcy when it’s your only option.

Ask the expert

Erin Kinkade


There are instances when you may not be able to manage your tax liability due to a medical condition that leads to incapacity or otherwise. In this case, consult an estate planning attorney or counselor who can help implement safeguards. For example, a durable or general power of attorney to handle financial affairs specifically including tax liabilities.

How much will the IRS settle for?

The IRS will often settle for what it deems you can feasibly pay. To determine this, the agency will take into account your assets (home, car, etc.), your income, your monthly expenses (rent, utilities, child care, etc.), your savings, and more.

The IRS does not publish statistics about how little the agency might settle for. For instance, when it comes to an OIC, the IRS simply states that it’s willing to settle a tax debt “for less than the full amount owed.”

Your best bet is to work with a tax accountant or tax resolution service to determine the most effective approach.

How to settle with the IRS by yourself

Unfortunately, tax accountants and tax settlement companies are expensive. You can settle tax debts with the IRS yourself, but it may be difficult.

Settling with the IRS requires various forms and documentation, as listed in the table below:

Installment agreementOnline or Form 9465, plus a Collection Information Statement
Partial payment installment agreementForm 9465, plus a Collection Information Statement
Offer in CompromiseForm 656 booklet
Currently not collectible statusMust call IRS at 800-829-1040
BankruptcyMust file a petition through the court system or seek an attorney’s assistance

If this seems too complex to handle solo, you can also call in a tax relief company or tax attorney.

Tax relief firms typically employ tax professionals and attorneys to help with your case. See our guide to the best tax relief companies if you’re considering this option. If you want to learn more about tax relief, check out our tax relief guide.

Ask the expert

Erin Kinkade


Whether you hire a professional to help with your tax debt depends on your level of competency in this area. If it’s not part of your acumen or you don’t have time to research in-depth to become competent, I recommend hiring a professional. Even if you are competent in this area, hiring a professional should help navigate some things you didn’t know that could benefit you through this process.