How Can Taxpayers Request Payment Plans and Offers in Compromise?

 Posted on March 31, 2025 in Employment Taxes

When people fall behind on their tax obligations, the consequences can be serious. The IRS may impose penalties, add interest to unpaid amounts, and even initiate collection actions such as wage garnishments, tax liens, or bank levies. For many taxpayers, paying off a large tax debt in one lump sum is simply not possible. Fortunately, the IRS offers several options to help taxpayers manage their debts, including payment plans and offers in compromise. A California tax attorney who has extensive experience in tax law can help taxpayers explore these options and present a strong case for reducing or managing their tax burdens.

Applying for an IRS Payment Plan

A payment plan, which is also known as an installment agreement, allows a taxpayer to pay off debt over time through monthly payments. There are several types of installment agreements based on the amount owed and the taxpayer’s financial situation:

• Short-Term Payment Plan: This option allows taxpayers to pay off their full balance within 180 days. It may be available if a taxpayer owes less than $100,000 in taxes, penalties, and interest.

• Long-Term Payment Plan (Installment Agreement): This option may be available for taxpayers who need more time to pay off the amount owed. Monthly installments will be paid over several months or years. An individual taxpayer may be eligible if they owe no more than $50,000 in taxes, penalties, and interest and have filed all required tax returns. Businesses may qualify for long-term installment agreements if they owe $25,000 or less in taxes, penalties, and interest.

The IRS allows eligible taxpayers to apply online, by phone, or via mail. A taxpayer can propose a monthly amount that they can afford to pay. In some cases, such as those involving higher balances or longer-term plans, a taxpayer may need to provide financial documentation of their income, expenses, and assets before they will be approved for a payment plan.

Understanding Offers in Compromise

In some cases, it may be difficult or impossible for a taxpayer to fully pay off their tax debts. With an offer in compromise (OIC), a taxpayer can submit a request to the IRS to pay less than the full amount they owe. This option may be available for taxpayers who can demonstrate that paying the full balance would create significant financial hardship. Applying for an offer in compromise will prevent IRS collection actions while the offer is being considered. 

In general, a taxpayer may be eligible for an offer in compromise if they have filed all tax returns as required and are not involved in ongoing bankruptcy proceedings. An application for an offer in compromise can be submitted through the mail. The application package includes information about a taxpayer’s income and assets on Form 433-A for individual taxpayers or Form 433-B for businesses, along with any required documentation specified on these forms. Form 656, which is an application for an offer in compromise, must also be filed.

An offer in compromise may allow for a lump sum payment, or monthly payments may be made until the required amount has been fully paid off. Any payments made while the IRS is considering an offer in compromise will be applied to the taxpayer’s tax liability. While the IRS may file a notice of a federal tax lien, this lien will be released once all terms of the offer have been satisfied. If the IRS rejects an offer in compromise, the taxpayer may file an appeal, and their offer will be considered by the IRS Independent Office of Appeals.

Contact Our San Jose, CA Tax Law Attorney

When you are facing large tax debts, you may have options for paying them off over time or making an offer to the IRS that will reduce the amount owed. As you address these issues, legal guidance can be beneficial, and an attorney can help you understand your best options for minimizing your tax burdens. At John D. Teter Law Offices, our San Jose, CA tax lawyer can help you submit a request for an installment agreement or offer in compromise, and we can also work with you to appeal unfavorable decisions and resolve any other tax issues you may encounter. Contact us at 408-866-1810 to set up a consultation and get the help you need with tax debts.