Legacy Law Blog

Millions of individuals and businesses face a common, anxiety-inducing scenario each year – opening the mailbox to find a notice from the Internal Revenue Service (IRS) stamped with the words “Amount Due.”

These notices often include stern warnings and threats of levies or property seizures, leaving recipients feeling overwhelmed and uncertain about what to do next.

For many, receiving such a notice or phone call from the IRS can feel intimidating or even hopeless, especially when the balance owed is unaffordable. However, if you find yourself in this situation, it’s important to know that there are steps you can take to address the issue.

The IRS is often willing to work with taxpayers to resolve outstanding debts, but understanding your options, developing a clear plan and taking action are essential to avoid future financial distress. So, what are tour options for resolving IRS notices?

Tax Compliance

The first step in resolving your tax issue is to achieve “tax compliance.” This means ensuring all required tax returns for the past six years have been filed and that any necessary estimated tax payments have been made.

The IRS will not consider settling your debt unless you are fully tax compliant because the IRS is interested in resolving the final debt. If there are missing returns or unpaid estimated taxes due, it is likely that the current tax debt is incomplete. By requiring that all returns be filed and any current estimated payments made, the IRS can negotiate resolution options with taxpayers, knowing that any collection alternative will fully resolve the debt.

Once you’ve met these requirements, you can explore the options available to address your outstanding balance. The IRS offers three primary alternatives for resolving tax debts:

Installment Agreement 

With an installment agreement, you can pay off your tax debt over time through monthly payments. At the conclusion of the installment agreement, the tax debt will be paid in full.

There are three categories of installment agreements: regular, streamlined and partial-pay. The regular and streamlined installment agreements will result in the total repayment of the tax debt. A partial-pay installment agreement allows for repayment of the tax debt for less than what would be required to fully repay the balance and is based on your ability to make monthly payments.

The best option for you will depend on your financial situation and the specifics of your case.

Offer-in-Compromise

An offer-in-compromise is an agreement that allows you to settle your tax debt for less than the total amount owed. This option requires a lump sum payment based on what the IRS determines as your Reasonable Collection Potential (RCP).

The RCP is calculated using the available equity in your assets and your ability to make monthly payments. If your RCP is lower than your total debt, the IRS may accept the offer. Following the acceptance of an offer, you must maintain tax compliance for five years to keep the settlement in place.

Uncollectable Status

If paying off your debt is impossible due to financial hardship—meaning you have no disposable income after covering basic expenses and no assets with available equity—the IRS may place you in Currently Uncollectable Status (CNC).

This status will not extinguish the underlying tax debt. However, it will prevent enforced collection actions such as calls from the IRS or additional notices. While in CNC, penalties and interest will continue to accrue on the debt. The IRS will seek a more permanent resolution to the tax debt should your circumstances change in the future. 

Take Control of Your Financial Future

Navigating IRS procedures can be complex and overwhelming. While the agency provides options for resolving tax debt, understanding which path is best for your situation often requires expert knowledge. Working with experienced legal counsel or a tax professional can help ensure you’re positioned for success and avoid costly mistakes.

Dealing with an IRS notice doesn’t have to mean financial ruin. By understanding your options and taking proactive steps toward resolution, you can regain control of your financial life. Don’t let tax issues weigh you down—there’s a path forward, and with the right guidance, you can navigate them successfully!