Know Your IRS Back Tax Assistance Options

Andrea Miller
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The IRS offers several back tax assistance options for taxpayers that may be going through difficult financial times. Depending on the circumstances and the amount of tax involved, these measures can vary from deferred payments to back tax forgiveness. You, of course, need to meet certain conditions to qualify for such assistance programs. If your back taxes are greater than your income and assets put together, or if repaying the back taxes put you into undue economic hardship, you should consider seeking back tax assistance services from an experienced tax counselor.

Back Tax Assistance Options Under the IRS Fresh Start Initiative

The first of a few back tax assistance options is the IRS Fresh Start Initiative originally started in 2008  and has since undergone frequent changes and expansions to accommodate a higher number of taxpayers, aiming to make things easier for individuals and businesses struggling to pay their back taxes. For instance, if you’ve been unemployed for 30 days on end, you can now apply for a six-month extension to pay your taxes without any penalties for the delay.

Back Tax Assistance Types

There are four major types of back tax assistance options provided under the Fresh Start Initiative:

  • Penalty relief
  • Installment agreements
  • Offers in compromise
  • Lien removal

Penalty Relief: Requesting Extension of Time for Payment

If you fail to pay your taxes on time, the IRS imposes interest and penalty on the unpaid amount. Currently, failure to file a tax return attracts a penalty of 5% per month, whereas the penalty for failing to pay the taxes is half a percent per month, subject to a cap of 25% in either case. Similarly, there is an interest rate of 3% per annum charged on the unpaid tax balance.

However, as a measure of temporary aid, the IRS provides a grace period of six months to salaried and self-employed taxpayers qualifying under the Fresh Start Initiative. You can request a payment extension without being liable to pay the penalty for delay in tax payment.

Know Your IRS Back Tax Assistance Options

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Note that the benefit is only in respect of “non-payment” penalty. You will still be liable to pay the “non-filing” penalty if you fail to file your tax return on time. Similarly, you will also have to pay the normal interest of 3% per annum on the unpaid tax amount.

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Eligibility Criteria

In order to qualify for a penalty assistance under the Fresh Start Initiative, you must meet the following eligibility requirements:

  • If you are a wage earner, you must be unemployed for at least 30 days continuously.
  • If you are self-employed, your net income must have dropped by at least 25%.
  • Your back tax owed amount must not be more than $50,000.
  • Your annual income must be within $200,000 if you are filing jointly with your spouse or within $100,000 if you are filing individually.

If you meet the above criteria, you can submit a request in Form 1127A, which can be downloaded from the IRS website.

If the IRS is satisfied that collecting the back taxes would cause you undue hardship, it will mark your account as “currently not collectible” and delay the collection temporarily. However, the process does not allow for making any changes in the amount of tax you owe. In fact, your tax liability will increase because of the annual interest.

Back Tax Assistance Through Payment Agreements

If your back tax amount does not exceed $50,000 ($25,000 in case of a business), you may be eligible to work out a repayment plan with the IRS. The repayment period depends upon the schedule you negotiate with the IRS and can go up to 72 months in some cases.

Installment agreements offered so that the IRS will not treat you as a defaulter. However, you will still continue to pay interest on your back taxes.

Types of Payment Agreements

There are two major types of online payment agreements:

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  • Monthly installment plans
  • Short-term extensions of tax repayment period

Monthly Installment Plan

This is the most common type of repayment plan, wherein you can repay your back taxes in monthly installments.

Short-Term Payment Extension

This repayment agreement is for taxpayers with less than $100,000 in back taxes. Under this plan, you can get up to 120 days to repay your dues to the IRS.

How to Apply

You can submit an online request for an online payment agreement. The IRS gives its decision almost immediately. Alternatively, you can apply to set up a payment agreement by filing Form 9465. However, you must have filed your tax returns before placing such request.

Usually, you can expect a response from the IRS within 30 days of filing the request. If they approve your application, you will receive a notice containing information about the payment agreement. An invoice for the setup fee, if any, accompanies the notice.

Setup Fees

The fee for setting up a monthly installment agreement is $120. However, if you choose to make payments through direct debit mode, the fee reduces to $52. Taxpayers falling under a lower income group may be eligible for a lower fee of $43. There is no setup fee for short-term payment agreements with a repayment period of 120 days.

Making Payments

You can choose to pay the installments by direct debit, check, credit card, money order, or payroll deduction. If you are applying for a streamlined installment agreement, you must agree to pay through direct debit.

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After the payment of each installment, the IRS sends you a notice showing the remaining balance of taxes. This happens in all modes of payment except direct debit, where your bank statement serves as a payment proof.

While negotiating a repayment agreement, you should keep your future tax obligations in mind because you would be paying them as well in addition to the monthly installments. The IRS is very particular about timely payment of installments. If you delay or miss the payment of even a single installment, your payment agreement is canceled, and you will have to seek assistance all over again, this time with the risk of being considered “unreliable” by the IRS.

Repayment Schedule

  • If the amount of back taxes is less than $10,000, you can file an online application for a repayment period of up to three years.
  • If the amount of back taxes is more than $10,000 but does not exceed $50,000, you can negotiate for a streamlined installment agreement with a repayment period of up to six years.
  • For back taxes of over $50,000 for individuals and $25,000 for businesses, you must file a request with the IRS in Form 9465, along with the Collection Information Statement in an appropriate form. You may be able to negotiate a longer repayment period with the IRS.

Back Taxes Settlement Through Offers in Compromise

An offer in compromise is meant for taxpayers who cannot repay their back taxes in full. It allows you to settle your tax dues for a partial payment, with the IRS agreeing to forgive the rest. A compromise settlement works in favor of both the taxpayer as well as the government. On one hand, it absolves you of your tax liability for a lesser payment, while on the other, it helps the IRS recover the maximum amount it can.

Strict Eligibility Requirements

These back tax assistance options are not for all taxpayers. It has stringent eligibility requirements and involves a lot of paperwork. You should consider applying for an offer in compromise only in the following circumstances:

  • You can convince the IRS that you cannot pay the original amount of taxes.
  • You have a legitimate reason to believe that you may not actually owe the assessed amount of taxes.
  • Paying the original amount of taxes would cause you undue financial hardship; for example, if you need the money for your child’s medical treatment.

You do not qualify for an offer in compromise if:

  • You can pay your taxes through an installment agreement
  • Your tax filing is not up-to-date
  • You are involved in a bankruptcy proceeding

How to Apply

You should submit a compromise offer in Form 656 along with a collection information statement in Form 433A or 433B. For Form 656, you must pay a filing fee of $186. If your back taxes includes taxes for an individual and a business, you must submit two 656 forms, one each for individual and business taxes, and pay a separate filing fee ($186) for each form. In addition to the filing fee, you must also pay the amount of initial offer.

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In order to increase your chances of approval, you should propose a reasonable settlement offer that reflects your true ability to repay the obligations. The application will require you to provide detailed financial information including the details of assets, expenses, and projected income in near future.

There is no specific timeframe for receiving a response from the IRS. However, if there is no response from the IRS within two years of making the offer, the application is considered as accepted.

Immediately after filing the application, you must start making periodic payments, if you chose such form of repayment. Failure to make such payment will result in rejection of the application.

If the IRS rejects your offer, you can file an appeal within 30 days. If the IRS accepts your offer, you must file and pay your taxes on time for at least another five years.

How to Handle Tax Liens

If you fail to pay your taxes on time, the IRS can place a claim on your property. This is known as a tax lien. Usually, the IRS places a tax lien only in cases where the amount of unpaid tax is more than $10,000. Receiving a tax lien notice from the IRS can be extremely stressful. It negatively impacts your creditworthiness.

You should contact the IRS as soon as possible to find out the complete details and back tax assistance options. You may qualify for an appeal in the following circumstances:

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  • The IRS placed the lien as a result of some error.
  • You have fully paid your back taxes.
  • The tax amount is incorrect, and you didn’t get the opportunity to dispute it.
  • You filed for bankruptcy before the IRS placed the lien.
  • The lien is in respect of the back taxes barred by the statute of limitations.

You can also request the IRS remove the tax lien if:

  • You have entered into an installment agreement with the IRS and are paying through the direct debit mode.
  • Removal of lien will enable you to pay your fiscal obligations faster.

The IRS makes a decision on the merits of each case. Withdrawal of lien, however, does not reduce the amount of your back taxes.

Tax Lien vs. Tax Levy

A tax lien differs from a tax levy. A tax lien gives the IRS a claim on your property, whereas a tax levy results in the seizure of your property. There are different types of tax levies the IRS can place. These include a levy on your wages or salary (wage garnishment), on your financial assets, on movable or immovable property, and on social security payment (social security garnishment).

It may be noted that the IRS uses lien and levy as the last resort to recover its tax dues.

Disaster-Specific Tax Relief

The IRS often announces back tax assistance options for taxpayers affected by certain natural disasters. The aid in such cases is limited to a certain geographical area. For example, there are a number of back tax assistance measures provided for the victims of hurricanes Irma and Maria. These include extension of tax deadlines in Puerto Rico and the U.S. Virgin Islands, special tax aid in the Presidential Disaster Areas, and payment relief in areas identified for individual assistance.

The IRS announced similar assistance measures for the victims of Harvey hurricane as well. Affected taxpayers can find out more about these special aids on the IRS website.

The Importance of Professional Back Tax Assistance Services

Understanding your eligibility and applying for a specific back tax assistance program isn’t an easy task. A professional back tax assistance service can help you evaluate back tax assistance options and apply for a back tax assistanceprogram that’s right for you. If you are looking for ways to come out of your back taxes, take a look at Solvable’s back tax assistance reviews of some of the most reliable companies in the tax resolution industry. Call us any time should you need any more information or help with your back taxes.


Andrea Miller
Expert Contributor
Last Updated: