Paying Taxes
Resolving a Balance Due
This section organizes IRS resolution pathways when a balance already exists on the account.
Late filing or payment – penalty relief:
Reasonable cause: IRS can waive penalties when there is a valid reason, such as death in the family, serious illness, loss of records, matters beyond your control, or not receiving necessary financial information.
First-Time Penalty Abatement (FTA): available when there were no penalties (other than estimated-tax penalties) in the prior 3 tax years, all required returns are filed or on valid extension, and the tax due is paid or an arrangement is in place.
Injured spouse:
When a joint refund is applied to a spouse’s separate past-due debt, the other spouse can file Form 8379, Injured Spouse Allocation, to seek recovery of that spouse’s share of the refund.
Innocent spouse relief:
When a joint filer did not know about improper reporting or omitted income by a spouse, relief is requested using Form 8857, Request for Innocent Spouse Relief; this covers innocent spouse relief, separation of liability, and equitable relief categories.
Audit reconsideration:
When tax owed stems from an audit you did not know about or could not participate in, you can request audit reconsideration for the IRS to re-examine records.
Return preparer fraud:
If a preparer changed a return without permission, you must be able to demonstrate this to the IRS and follow specified steps to correct the account.
Financial hardship / Currently Not Collectible:
When you cannot pay taxes and also meet reasonable basic living expenses, the IRS can assign CNC status and pause collection while interest and penalties continue to accrue.
Offer in Compromise:
An OIC is an agreement where the IRS accepts less than the full amount owed, on three bases:
1. Doubt as to collectability – insufficient income and assets to pay in full, evaluated with the Form 656-B OIC booklet and financial disclosures.
2. Effective tax administration – paying in full would create economic hardship or be inequitable even though the tax is legally owed and collectible.
3. Doubt as to liability – the amount of tax is disputed; Form 656-L is used in this situation.
Payment arrangements:
Short-term extensions, formal installment agreements, and OICs form the main set of arrangements when full immediate payment is not viable.
Core resources for balance-due resolution listed in the source: IRS OIC Pre-Qualifier Tool, Online Payment Plan Application, and account transcripts.
When You Cannot Pay in Full
This section maps IRS collection options to financial capacity when you cannot pay the full assessed amount.
IRS payment options depend on the total amount owed and the current financial situation; each option has specific requirements and some options have user fees.
Business owners with employees and employmenz-related taxes must work directly with the IRS for acceptable arrangements under special employment-tax rules.
Payment options in this framework
1. Short-term extension:
Up to 180 days to pay in full, no user fee, interest and penalties continue during the extension.
2. Installment agreement:
Formal plan to pay over time under an approved schedule.
3. Offer in Compromise:
Settlement for less than the full amount owed when eligibility criteria are met.
4. Currently Not Collectible (CNC):
Temporary pause in collection activity when payment would prevent meeting basic living expenses.
Referenced IRS resources
Publication 594, The IRS Collection Process.
OIC Pre-Qualifier Tool, Online Payment Plan Application, and IRS account transcript access for verifying balances and history.
Offer in Compromise (OIC)
This section preserves the IRS OIC structure, eligibility, processing rules, and post-acceptance compliance conditions.
An OIC is an agreement in which the IRS accepts less than the full amount owed, applied when paying in full would create financial hardship or where specific OIC grounds exist.
The application fee is 205 dollars and is waived for low-income applicants under the OIC booklet Form 656-B; initial offer payments are required at submission depending on the chosen payment method.
When the IRS will not process an offer
The IRS will not process an OIC when any of the following is true:
1. You are currently in bankruptcy.
2. The case is under the jurisdiction of the Department of Justice.
3. There is no balance due.
4. The collection statute has expired or you are not current with estimated tax payments or federal tax deposits.
5. Federal tax returns are past due.
6. The required application fee and initial payment were not submitted.
After the IRS processes the offer
If the IRS closes the offer without accepting it, the application fee and payments are non-refundable and are applied to the tax balance.
IRS normally has 10 years to collect; filing an offer extends the collection period.
Collection activities such as levies are generally paused while the offer is pending, but the IRS can still file a Notice of Federal Tax Lien, and the IRS keeps any refund, including interest, through the date the offer is accepted.
Outcomes: rejection, acceptance, return
If the IRS rejects the offer, you can appeal within 30 days using Form 13711, Request for Appeal of Offer in Compromise, or by following the IRS appeal instructions.
If the IRS accepts the offer:
You must comply with all terms, including staying current with filing and paying taxes for 5 years after acceptance; failure results in default and reinstatement of the full original debt.
If the IRS returns the offer (without decision on the merits):
No appeal is available; the IRS sends a 30-day notice to respond for reconsideration.
Staying current going forward
To avoid future collection issues after or outside an OIC, the source specifies: adjust wage withholding using Form W-4, use the IRS withholding calculator, and increase estimated tax payments where needed.
OIC resources
Publication 594, The IRS Collection Process.
Form 13711, Request for Appeal of Offer in Compromise.
IRS Topic No. 202, tax payment options, and Topic No. 204, Offers in Compromise.
Form 656-B, Offer in Compromise Booklet.
Currently Not Collectible (CNC)
This section preserves IRS criteria and procedures for placing an account in CNC status while maintaining the underlying debt.
CNC status is used when you agree you owe the IRS but cannot pay and cannot cover basic living expenses; collection is paused, but the balance, penalties, and interest continue to accrue.
Qualification criteria and information requested
You must agree you owe the tax and the IRS must agree that you cannot pay both the tax and reasonable basic living expenses based on financial analysis.
IRS will request verification of income, expenses, and debts through financial information.
Actions when requesting CNC
1. File prior-year tax returns even if you cannot pay, using Free File options if needed or VITA/TCE sites where eligible; CNC can be granted even with some unfiled returns in genuine hardship situations as described in the source.
2. Continue making estimated tax payments and federal tax deposits on time.
3. Continue filing returns on time to avoid late-filing penalties.
4. Gather documentation for income, expenses, and debts to support the CNC request.
If you disagree with an IRS CNC decision
You can request a conference with an IRS Collection manager; IRS staff must provide the supervisor’s name and phone number.
You can hire an attorney, CPA, or enrolled agent, or seek representation from a Low Income Taxpayer Clinic (LITC) if income-eligible.
You can appeal collection actions under Publication 1660, Collection Appeal Rights.
Impact and references
CNC does not eliminate the balance; penalties and interest continue, and the IRS can periodically review and resume collection if your financial position improves.
Resources listed in the source: Publication 594, Publication 1 (Your Rights as a Taxpayer), Publication 1660, Topic 202 (tax payment options), and IRS guidance on requesting a temporary collection delay.
Self-Employment Taxes
This section preserves IRS self-employment (SE) tax rules, required forms, and Social Security implications.
SE tax applies to self-employed individuals (sole proprietors, independent contractors, partners) in addition to income tax and covers Social Security and Medicare taxes; SSA uses SE information to calculate Social Security benefits.
The SE tax rate is 15.3 percent, consisting of 12.4 percent Social Security and 2.9 percent Medicare, applied to net self-employment income; one-half of SE tax is deductible from gross income on Form 1040.
Determining net income and SE-tax exposure
Net profit is total business income minus expenses and losses; if the business has a net loss (expenses greater than income), SE tax does not apply for that year.
Calculating and reporting SE tax
You calculate SE tax using Schedule SE (Form 1040), Self-Employment Tax, and attach it to the return; Schedule SE also computes the one-half SE tax deduction, reported as an adjustment on Form 1040 and, for post-2017 years, on Form 1040 Schedule 1, Part II.
The completed Schedule SE is filed with the return.
Quarterly estimated taxes
If you are subject to SE tax and income tax, you generally must file an annual return and pay estimated taxes quarterly using Form 1040-ES; penalties apply if withholding and estimated payments are insufficient.
Social Security impact and deadlines
You must report all self-employment income and pay SE tax so SSA can properly credit your earnings record; incorrect or missing reporting can reduce future benefits.
SSA credits SE income only if it is reported within 3 years, 3 months, and 15 days after the taxable year; changes after that deadline can only reduce or remove amounts, not increase them.
Self-employment resources
Self-Employed Individuals Tax Center on IRS.gov.
IRM 21.6.4.4.14 on SE tax procedures (referenced in the source).!
Publication 225, Farmer’s Tax Guide, and Publication 334, Tax Guide for Small Business.
Schedule SE (Form 1040) and its instructions.
Payment Plans and Installment Agreements
This section preserves IRS installment-agreement types, eligibility thresholds, and appeal routes.
Installment agreements allow tax debts to be paid over time.
Short-term payment plan: up to 180 days with no formal agreement and no user fee; interest and penalties continue.
Long-term payment plan (installment agreement): more than 180 days, formalized with specific conditions.
Requirements to qualify and remain compliant
You must timely file all required returns, make required estimated tax payments, remain current on filing and payment while on the plan, and understand that future refunds will be applied to unpaid taxes until the balance is paid.
Types of long-term installment agreements
1. Guaranteed installment agreements:
• Tax owed (excluding interest and penalties) is less than 10,000 dollars.
• All taxes filed and paid for the last 5 years.
• No prior installment agreement in the previous 5 years.
• Ability to pay full amount within 3 years.
• Agreement to pay before the collection statute expires and to comply with tax laws during the agreement.
• Can be requested online, by phone, or by mail.
2. Streamlined installment agreements:
• No financial statement required if full payment is possible within 72 months (6 years).
• Under 25,000 dollars (tax, penalties, and interest): available to individuals, in-business entities that owe Form 1120 or 1065 late-filing penalties, and out-of-business entities for any tax.
• 25,001–50,000 dollar balance: available to individuals and out-of-business sole proprietors; direct debit or payroll deduction is required.
• Can be requested online, by phone, or by mail.
3. Partial Pay Installment Agreement (PPIA):
• For taxpayers with some ability to pay but not enough to pay in full before the collection period expires; payments continue until the collection statute expires and total paid is less than full liability.
• TAS maintains guidance pages for PPIA reference.
4. Routine/regular installment agreements:
• Used when guaranteed or streamlined criteria are not met; requests are made by phone or mail, not online.
• Full payment must occur before the collection statute expiration.
• “Six-year rule”: individuals may qualify by providing financial information (without proof of expenses) and paying in full within 72 months and within the collection statute.
• “One-year rule”: when payment in 6 years is not possible, IRS can allow 1 year to modify or eliminate excessive expenses to qualify.
5. In-business Trust Fund Express agreement:
• For businesses that owe up to 25,000 dollars; the balance must be fully paid within 24 months or before the collection statute expires, whichever is earlier.
• Businesses can pay down balances to 25,000 dollars to qualify and then apply online, by phone, or by mail.
If no standard type fits
You contact the IRS at 800-829-1040 for individuals or 800-829-4933 for businesses to discuss alternatives.
Considerations before entering an installment agreement
Interest and penalties continue to accrue; failure to stay current can cause default or termination; future refunds are applied to the balance until paid.
If IRS rejects, defaults, or terminates an agreement
Rejection: you can appeal with Form 9423, Collection Appeal Request, or through Collection Due Process where applicable.
Default or termination: you can also appeal; IRS must notify you in writing before action.
Installment-agreement resources
Installment agreement resources
Form 9465, Installment Agreement Request.
Form 9423, Collection Appeal Request.
Form 433-F, Collection Information Statement.
Publication 1660, Collection Appeal Rights.
IRS Topic 202, tax payment options, and IRS payment-options guidance and online payment agreement pages.
Important Notes
These points highlight structure-critical rules and deadlines embedded in the paying-taxes and collection procedures.
CNC status pauses collection but not accrual of penalties and interest, and the underlying debt remains until paid or time-barred.
OIC filings extend the collection statute, and application fees and initial payments are non-refundable if the offer is closed without acceptance; accepted offers require 5 years of full compliance, or the original debt is reinstated.
Installment agreements require current and future compliance; failure to file or pay while on an agreement can trigger default and renewed enforced collection.
Self-employment tax and related reporting directly affect Social Security benefit computations and must be reported within 3 years, 3 months, and 15 days for full credit.
Appeals of OIC rejections must be filed within 30 days using Form 13711 or equivalent written request, and appeals of certain collection actions, rejection, or termination of installment agreements use Form 9423 and Publication 1660 processes.
Official References
- Internal Revenue Service
- Publication 594, The IRS Collection Process:
https://www.irs.gov/pub/irs-pdf/p594.pdf - Publication 1, Your Rights as a Taxpayer:
https://www.irs.gov/pub/irs-pdf/p1.pdf - Publication 1660, Collection Appeal Rights:
https://www.irs.gov/pub/irs-pdf/p1660.pdf - Publication 225, Farmer’s Tax Guide:
https://www.irs.gov/publications/p225 - Publication 334, Tax Guide for Small Business:
https://www.irs.gov/publications/p334 - Topic No. 202, Tax Payment Options / IRS payment options:
https://www.irs.gov/newsroom/irs-payment-options - Topic No. 204, Offers in Compromise:
https://www.irs.gov/taxtopics/tc204 - Self-Employed Individuals Tax Center:
https://www.irs.gov/businesses/small-businesses-self-employed/self-employed-individuals-tax-center - Estimated taxes and Form 1040-ES:
https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes - Form 1040-ES (PDF):
https://www.irs.gov/pub/irs-pdf/f1040es.pdf - Form 8379, Injured Spouse Allocation:
https://www.irs.gov/forms-pubs/about-form-8379 - Innocent Spouse Relief:
https://www.irs.gov/individuals/innocent-spouse-relief - Audit Reconsideration and Issues/Errors guidance:
https://www.taxpayeradvocate.irs.gov/get-help/issues-errors/ - Offer in Compromise Pre-Qualifier Tool:
https://irs.treasury.gov/oic_pre_qualifier/ - Form 656-B, Offer in Compromise Booklet:
https://www.irs.gov/pub/irs-pdf/f656b.pdf - Form 656-L, Offer in Compromise (Doubt as to Liability):
https://www.irs.gov/pub/irs-pdf/f656l.pdf - Form 13711, Request for Appeal of Offer in Compromise:
https://www.irs.gov/pub/irs-pdf/f13711.pdf - Online Payment Agreement / Online Payment Plan Application:
https://www.irs.gov/payments/online-payment-agreement-application - Form 9465, Installment Agreement Request:
https://www.irs.gov/pub/irs-pdf/f9465.pdf - Form 9423, Collection Appeal Request:
https://www.irs.gov/pub/irs-pdf/f9423.pdf - Form 433-F, Collection Information Statement:
https://www.irs.gov/pub/irs-pdf/f433f.pdf - Taxpayer Advocate Service and Related Programs
- Taxpayer Advocate Service – main site and “Get Help” on collection and balance due issues:
https://www.taxpayeradvocate.irs.gov - Low Income Taxpayer Clinics (LITC) and Publication 4134:
https://www.irs.gov/advocate/low-income-taxpayer-clinics
