Classic IRS Innocent Spouse Relief Requirements

Apply for Tax Relief Under Section 6015 B of IRS Code

Innocent spouse relief is an IRS program designed to protect people who are facing a tax debt due to their former spouse or spouse's actions. To qualify as an innocent spouse, you must establish that your spouse/former spouse is solely responsible for the tax liability, penalties, or interest from your joint return. If you are the responsible party, you can't qualify for this program. To help you out, this guide looks at the innocent spouse relief requirements so you can start to decide if this might be an option for you. 

Requirements for Innocent Spouse Relief

To qualify for innocent spouse relief, you must meet a range of requirements. If you don't meet all of the requirements explained below, you will not be able to obtain this type of relief, but in that situation, you may want to look at the other two types of innocent spouse programs. Note that with this type of relief, married taxpayers who live with their spouses can request innocent spouse relief, but with some of the other options, your marriage must be over.

You Filed a Joint Tax Return for the Year You Are Seeking Relief

You must have filed a joint tax return for the year you are seeking relief. Legally, when you file a joint return, you and your spouse become jointly and severally liable for the tax debt. This means that the IRS can hold you both responsible (jointly), but it can also hold you individually (severally) responsible.

To give you an example of joint and several liabilities, imagine that you sign a joint tax return that says you and your spouse owe $10,000 in tax. All of the tax owed is due to your spouse's business. You owed some tax during the year, but you already paid it from the money withheld from your paycheck throughout the year. Normally, it doesn't matter that the bill was just due to your spouse. By signing the joint return, you become responsible for the bill. The IRS has the right to go after you personally for the whole thing. However, this rule isn't necessarily fair, and that's where innocent spouse relief comes into play. If you can prove that you shouldn't be responsible for the bill, you can get relief.   

The rules are different in community property states such as Wisconsin. Innocent spouse relief in community property states is complicated, and it often only comes into play when you file as married filing separately. You can find more information about community property states here on the IRS's website.

The Tax Return Has an Understatement of Tax

The joint return must contain an understatement of tax. That means that the joint tax return says you owe less tax than you really do. This can happen due to unreported income, inflated deductions, incorrect basis, or erroneous credits. Here are some examples. If your spouse didn't report income from lottery winnings or a side business, the joint return has underreported income. An inflated deduction may apply if your spouse makes up business deductions or claims deductions for expenses they didn't pay. If your spouse sells a property and claims they originally paid more than they did to minimize the capital gains, that is a case of incorrect basis.  

You Blame Your Spouse or Former Spouse

An error caused by your spouse or former spouse is the reason for the understatement of tax on your joint tax return. As indicated above, that may include underreporting income, claiming the wrong deductions, or over-claiming deductions or credits. Other examples may relate to using the wrong basis for claims related to capital gains or losses, as well as math errors. However, simply blaming your spouse is not enough. You must meet other requirements.

To illustrate, let's say that your spouse claimed a $5,000 business deduction for dog food because they said that the dogs were guard dogs for your home-based business. You didn't really agree, but you signed the return anyway. Then, the IRS audited the return, disallowed the expense, and sent you a bill for the tax. Unfortunately, in this situation, you can't claim that you're not responsible because the deduction was your spouse's idea. Unfortunately, since you knew about the issue when you signed the return, you cannot apply for this type of spouse relief. However, you may be able to get separate liability relief or equitable relief — especially if you signed the return out of fear or under duress. 

You Were Unaware of the Understatement of Tax

Plain and simple, this rule means that you did not know about the unreported income or any other erroneous item(s) when you signed the return. In other words, you had no actual knowledge of the issue and no reason to know about it. This is where innocent spouse relief claims can get very tricky. The IRS has strict definitions around the concepts of actual knowledge and reason to know, but this is also a subjective issue which is why you need a skilled tax pro to help you.

To be declared an innocent spouse, you must be able to prove that you didn’t know about the issue. Furthermore, you must show there was no reason why you would have known. To give you a very basic example, imagine that your spouse was running a secret business to support a secret gambling addiction and they didn't report the income. In this case, it may seem reasonable that you didn't know. However, if your spouse was earning an extra $100,000 a year that was paying for family vacations, home remodels, and other expensive items, you probably should have wondered where all the extra money was coming from. You will remain jointly responsible if the IRS thinks that a reasonable person should have known. This is one of the most common rejection reasons.

When deciding if you should have known about the issue, the IRS considers many factors. For instance, the IRS will consider your spouse’s finances, your educational background, and your business experience. For instance, if you're a lawyer or you have a master's degree in business but you didn't sign a tax return for the last five years, you may be able to argue that you didn't know about the situation, but the IRS will counter that due to your educational background, you should have asked questions about why there wasn't a tax return to sign. In other words, the IRS will claim that you had a reason to know about the issue due to your education. Moreover, the IRS will look at patterns in previous years, and whether you participated in the activity related to the error. The IRS will also consider if you benefited from the understatement of tax.

It Is Truly Unfair to Hold You Responsible for the Tax Liability

There is a significant amount of interpretation in regards to this element. The IRS looks at a number of factors including whether you benefited (indirectly or directly) from the understated tax. The IRS will also look to see if you received a significant benefit. This is a benefit(s) in excess of normal support. For example, if you acquired certain assets, property rights, or money after the filing of the return, the IRS may say that you received a significant benefit.

When you apply for relief, you must reveal if your spouse transferred any property to you. Even if you didn't know about the issue and it was solely your spouse's fault, a property transfer can show that you benefited from the understatement of tax on the joint tax return. For instance, say that your spouse underreported tax in 2018, and you didn't know about it. Then, in 2019, your spouse gave you a sports car, and its cost was substantially more than your spouse could normally afford based on their reported income. In 2020, you got a divorce. The next year, the IRS comes after you for the tax debt. You claim you didn't know about the tax bill, but the IRS looks at the car and begs to differ. These are the types of complex issues that IRS takes into account when assessing the issue of fairness.  

The agency also takes into account if you’re widowed, divorced, separated, and if your spouse left you. Here's another example. Imagine that your spouse lied to you about underreporting income. Then, they fled the country or died unexpectedly. You don't have the resources to pay for the tax bill, and you didn't have any reason to know that your spouse was lying on the returns. In this case, it probably would be unfair or inequitable to hold you responsible.

The agency also takes into account personal details about your relationship. The IRS wants to see if there has been a pattern of your spouse lying and deceiving you. When you apply for innocent spouse relief, you can also explain if your relationship was abusive. If desired, you can have the abuse noted on your account, and the IRS agents who contact you will be sensitive about this personal issue. However, you don't have to note abuse on your account if you don't want to.

What if it would be unfair to hold you responsible but you don't meet the other requirements? In this case, you should check out equitable relief. Innocent spouse based on equitable relief really focuses on the fairness issue. For instance, this may apply in cases where you knew about the issue but you were forced to sign the joint tax return. You have a little more leeway on some of the above requirements when you use the equitable relief category, but you can only apply if you are separated or no longer married.  

The IRS Began Collection Activities Less Than 2 Years Ago

For you to qualify as an innocent spouse, it must be less than two years since the IRS first attempted to collect these taxes from you. Note that the clock starts running when the collection actions start, not when the return was filed. For instance, collection actions may include the IRS taking you to court for the tax bill or seizing your tax refund because you owe tax due to an understatement on a previous year's jointly filed return. To be on the safe side, you should reach out for help as soon as you suspect an issue. You don't want to miss this window of opportunity. 

Partial Innocent Spouse Relief 

Innocent spouse relief isn't all or nothing. In some cases, you may qualify for partial relief. This applies when you knew about part of the understatement but not all. To give you an example, imagine that your spouse earned $80,000 in a side business, and they didn't report the income on your tax return. You knew that they earned $10,000 on the side, but you had no knowledge of the other $70,000 because they were very deftly hiding it from you. In this case, you can make a strong argument that you deserve relief from the tax due to the $70,000 of unreported income. If the IRS grants your request, the agency will hold you responsible for the tax related to the $10,000 but not the remaining $70,000.

If you meet all of the above requirements, there is a strong possibility you will find relief. If the IRS accepts your request, you are no longer liable for the tax debt, interest, or penalties related to the understatement of tax. However, if you do not meet the requirements above, you can look at other forms of Innocent Spouse Relief such as separation of liability or equitable relief. Separation of liability breaks down the details on the return so that you are only responsible for the taxes related to your portion of the income. Equitable relief can apply in situations where the tax was understated or underpaid due to your spouse or ex-spouse's actions, and it would be unfair to hold you responsible. 

If you are looking for a tax professional that has experience with Innocent Spouse Relief, you can find a list of tax professionals that have experience with innocent spouse relief here. Or you can start your search below to find the top-rated professional based on your unique tax situation. Once you find a local tax professional that meets your needs, you can contact them directly. Most tax pros start with a free consultation, and they can help you decide if the innocent spouse program is right for you or if you should take another approach. In many cases, you may end up using multiple programs. For instance, you might apply for innocent spouse relief on some of the tax bill, but then, you might also need to set up payments on the remaining liability. 

Tax Relief Services from Trusted Professionals

Dealing with IRS debt, penalties, or unfiled returns? A trusted tax relief service can help you find the right solution. Licensed professionals offer tax relief services to reduce what you owe, stop collections, and restore financial stability. These experts also provide tax reduction services tailored to your income, assets, and ability to pay. Find a local tax pro at TaxCure. 

How Tax Companies Work: What to Expect With Services

Understand how tax relief companies work before you hire one. Most companies work in the same manner, but you should feel pressured. Take time to explore all your options before you choose the tax care services that best fit your needs.

How to Find the Best Local Tax Relief Company

Finding a tax relief company that is best for your unique situation is not an easy task. Many review sites rank top firms, but are these the best ones for you? Here are some things to look out for when looking at review sites and talking with these companies.

Look out for sales tactics and take time to compare your options. Local firms often provide better service, and we make it easy to find a vetted, reputable option in your area. These providers may offer more flexible and client-focused tax solution services.

Tax Settlement Services

If you need to settle IRS and/or state taxes a tax relief company can analyze your finances and recommend the best tax resolution services. There are different settlement options, getting advice from a licensed tax relief professional helps you choose the right tax relief solution.

• Offer in Compromise

  An offer in compromise, lets you settle your tax debt for less than you owe. The IRS rejects many of these, but a tax relief professional can improve your chances. Some states don’t offer this option, so work with a tax professional familiar with your specific tax agency.

• Penalty Abatement

  If you qualify for first-time penalty abatement or have a valid reason, a tax relief professional can help reduce or remove tax penalties. Tax relief professionals know what the IRS or state agencies require, who qualifies, and how the process works.

• Innocent Spouse Relief

  The IRS (and some states) offer Innocent Spouse Relief when it's unfair to hold one spouse responsible for joint tax debt. A tax relief professional can handle the paperwork and make sure the liability is removed from the innocent spouse.

• Payment Plan Negotiation and Setup

  If you can’t reduce what you owe, a tax relief professional can set up a payment plan with the IRS or state. A tax professional will find the best way for you to pay your taxes and create an affordable payment plan that fits your budget.

• Hardship/Uncollectible Service

  If you can’t pay your taxes, a tax relief professional can help stop IRS collections by having you declared temporarily uncollectible until finances improve. To do this proper paperwork must be filed to prove your poor financial situation with the IRS. Some states offer this option as well.

File Back Taxes Service

If you have outstanding returns, even without all your documents, a tax professional can file them properly and claim all eligible deductions. If you find you owe more taxes than you owe a tax professional can also set you up with a tax settlement.

Remove a Tax Levy

If the IRS or a state tax agency begin seizing assets a tax professional generally can help quickly. Tax professionals will find appropriate tax settlement method and files the proper paperwork to avoid the collection of:

• bank funds
• wages
• property
• physical assets

• Stop IRS Wage Garnishment

  If the IRS is garnishing your wages, a tax relief services can quickly stop the wage levy quickly. A tax professional will analyze your tax, financial, and work situation to determine the best course of action.

• IRS Bank Account Levy Help

  If the IRS has frozen your account, a tax relief professional can quickly assess your case. They can find the best way to remove the bank levy and resolve the issue. Find out more about how services work by reaching out to a tax professional on TaxCure.

Remove a Tax Lien

A tax lien stays in place until you pay your taxes or make a deal with the IRS or your state. A tax relief professional can help you remove or release the lien without causing financial stress.

Audit Representation

Did you receive a notice of audit? A partnered firm offering tax representation services can guide you through an audit and present your case accurately. Audits can work in your favor too. Tax professionals have many tactics in audits to ensure things go over smoothly.

Finding Professionals That Help With Specific Problems or Solutions

If you are looking to connect with a tax professional for your specific tax problem or have a particular solution in mind, start your search below by selecting the agency/agencies involved and location. You can then filter further to find the exact professional with the experience you need. Find a local tax pro.

Tax Relief Services Frequently Asked Questions

What are tax relief services?

Tax relief services help resolve IRS or state tax problems like unpaid taxes, unfiled returns, penalties, and collections. Professionals negotiate options such as settlements, payment plans, penalty abatements, and hardship status to reduce debt and stop actions like levies or liens.

How much do tax resolution services cost?

Most tax resolution cases range from $3,500 to $5,500, depending on the complexity and the tax amount owed. Some cases, such as offers in compromise or business tax issues, may cost more. Most firms charge an upfront fee, with payment plans available in some cases.

How do I know if I need tax relief services?

You may need help if you face IRS notices, levies, unfiled returns, or can’t pay your tax bill. Check your IRS account online or use their Pre-Qualifier Tool. Debts over $10,000 or audits often require professional assistance.

When should I seek professional tax help versus handling it myself?

You should consider hiring a tax professional if you owe over $10,000, can’t pay what you owe, are facing liens, levies, or wage garnishments, or need help with an audit or settlement. Even for smaller issues, some people prefer professional help to avoid the stress of dealing with the IRS directly.

Can tax relief services really save me money, or is it just hype?

Tax relief is about finding the best solution you qualify for, not just saving money. A professional may help stop wage garnishments, fix past filings, or set up a payment plan you can afford. Some taxpayers do save through settlements or penalty relief, but avoid anyone making promises before reviewing your full financial situation.

What’s the difference between tax relief and tax preparation?

Tax preparation focuses on accurately filing your tax returns each year. Tax relief helps resolve tax problems after filing, such as unpaid balances, audits, penalties, or collection actions. While some tax issues start with filing errors or missed returns, others happen when someone simply can’t pay what they owe due to financial hardship.

IRS Installment Agreements: Set Up Payments Online or With Form 9465 

If you cannot pay your taxes in full, you may want to set up an installment agreement. This type of payment plan lets you make monthly payments on your tax debt until the bill is paid in full. You will incur interest and a small monthly penalty while on an installment agreement, but as long as you make your monthly payments, the IRS will not initiate any involuntary collection actions against you. 

This guide outlines the different types of payment plans, how to apply, what to expect while making payments, and how to appeal if the IRS rejects your request to set up or modify an installment agreement. To get help applying for a payment plan or to talk about other options, use TaxCure to find a tax pro in your area today. 

Use this table of contents to navigate to the subsections of this article:

Table of Contents

• What Is an IRS Payment Plan?
• Types of IRS Payment Plans
  • Online
  • Guaranteed
  • Simple Payment Plan
  • Non-Streamlined
  • Partial Payment
  • Payroll tax installment agreement
  • Streamlined
• Tool: What Type of Payment Plan Should I Apply For?
• When to Apply for an IRS Installment Agreement
• How to Apply for an IRS Installment Agreement
• What to Expect When You're on an IRS Installment Agreement
  • Interest rates
  • Consequences of missing a payment
  • Rolling new tax debt into your payment plan
  • Making changes to your installment agreement
• Appealing a Rejected or Teminated IRS Installment Agreement
• FAQs About Installment Agreements

What Is an IRS Installment Agreement? Definition and Alternatives

An IRS installment agreement is a monthly payment plan for tax debt. The IRS offers several types of agreements with different application requirements. If you owe $50,000 or less and can pay off the balance within six years, you can usually set up an installment agreement pretty quickly and easily. However, if you owe over that threshold, need longer to pay, or have a history of defaulting on these agreements, you will need to give the IRS detailed financial information before they approve your request. 

An installment agreement is the most common type of tax relief, but for an installment plan to work, you need to be able to afford the payments every month. If you don’t have any disposable income, you may want to pursue other options such as establishing yourself as non-collectible status (CNC) or applying for an offer-in-compromise (OIC). Research from the Taxpayer Advocate Service indicates that over a quarter of people who set up installment agreements on their tax debt in 2022 could have qualified for CNC or an OIC. To ensure you're setting yourself up for success, you may want to consult with a tax pro about your options.

Types of IRS Installment Agreements

Comparison of IRS Installment Agreement Options

Agreement Type	Who It's For	Max Amount Owed	Term Limit	Financial Disclosure Required?
Short-Term Payment Plan	Anyone who can pay in 180 days	$100,000	180 days	No
Guaranteed Installment Agreement	Individuals who owe $10,000 or less	$10,000	36 months	No
Simple Payment Plan	Individuals under $50,000	$50,000	Up to 10 years (by the CSED)	No
Non-Streamlined Agreement	Individuals over $50,000	No maximum	Up to 10 years (by the CSED)	Yes
Partial Payment Installment Agreement (PPIA)	Taxpayers who cannot pay full debt	Varies	Until CSED	Yes
Payroll Tax Installment Agreement	Businesses with payroll tax debt	$25,000 (express)	24 months (express)	Yes

To meet the diverse needs of taxpayers, the IRS offers a few different types of Installment Agreements. All of these agreements share one critical feature – in exchange for you agreeing to make monthly payments, the IRS agrees to stop collection actions against you. The differences in these plans is how you apply and the type of information you need to provide to get approved. Here is a brief overview and links to resources with more information.

• Online Payment Agreement – If you owe under a certain threshold and are up to date on your filing requirements, you can apply for an installment agreement online through the IRS's website. You can use this option to set up a short-term payment agreement if you owe under $100,000 and can pay off the balance within 180 days, or if you owe under $50,000, you can set up a long-term payment plan. 
• Guaranteed Installment Agreement – This installment agreement offers “guaranteed” approval as long as you meet the requirements: 1) You owe $10,000 or less in taxes, 2) You can pay off the taxes within three years or before the collection statute expiration date (CSED) whichever comes first, and 3) You're up to date on filing your tax returns.

• Simple Payment Plan – Take up to 10 years (or until the collection statute expiration date if sooner) to repay up to $50,000 in tax debt, penalties, and interest. You can apply online, and most taxpayers owing individual tax debt qualify. 

• Non-Streamlined Agreement – If you owe over $50,000, you can apply for a non-streamlined installment agreement (NSIA). This installment agreement was named non-streamlined because in the past you used to have to submit a collection information statement. As of 2024, that's usually not required unless the taxpayer is requesting a release of a levy or their debt has been certified as seriously delinquent to the State Department. However, if you set up this type of payment plan, the IRS will most likely file a federal tax lien against you — note that there are exceptions. 

  Generally, if you owe less than $250,000 and your case has not been assigned to a revenue officer, you don't have to provide a collection information statement. In contrast, if you owe over $250,000 or if a revenue officer is working on your case, the IRS will generally request a collection information statement (Form 433).

• Partial Payment Installment Agreement (PPIA) – If you cannot afford the minimum monthly payments on a regular installment agreement, you may want to apply for a PPIA.  This type of IRS installment agreement allows you to make monthly payments you can afford, and when the CSED arrives, the debt expires and you don't have to pay the rest. Because you're paying less than you owe, it is more to obtain this Installment Agreement.  You have to submit a lot of financial information to the IRS for the agency to consider and prove you cannot make regular monthly payments.

• Express installment agreements for payroll taxes – If your business owes payroll taxes, you may be able to use one of the options above if it was a sole prop and you are no longer operating. However, if you're still in business or dealing with a corporation, you will generally need to apply for a special installment agreement just for payroll taxes. The IRS's express option is for payroll tax debts under $25,000 that can be paid in two years. There are also options for businesses that owe more, but to get approved, you must provide financial details. 

• Streamlined Installment Agreement – Businesses may qualify to set up a streamlined agreement for up to 72 months on up to $25,000 in non-payroll tax debt. If the business is no longer operating, they can take up to six years to pay any time of tax debt — out-of-business sole props can qualify with up to $50,000 in tax debt.  

Those are the main types of IRS Installment Agreements. However, you may also hear about direct debit agreements and financially verified agreements. These categories overlap with the categories above. For example, any payment plan that is paid with direct debit from your bank account can be referred to as a direct debit payment. Similarly, any installment agreement that requires a financial disclosure can be referred to as a financially verified installment agreement.

Tool: What Payment Plan Should You Apply For?

Use this tool to help determine your eligibility and guidance on what you should apply for when setting up and installment agreement with the IRS.

This tool is for informational and educational purposes only and does not constitute legal or tax advice. Always consult a qualified tax professional regarding your specific situation. Use of this tool is at your own risk.

This tool is for educational use only and not tax or legal advice. Consult a professional for your situation.

What is a Direct Debit Installment Agreement?

A direct debit installment agreement (DDIA) is an installment agreement where the taxpayer makes monthly payments via direct debit. That means payments are withdrawn directly from your bank account. In certain cases, especially for business taxpayers or individuals with a history of default, the IRS may require direct debit payments. Alternatively, you can use a payroll deduction to make automatic payments – that's where your employer withholds your payments from your paycheck and sends them to the IRS. 

Generally, if you owe more than $50,000, the IRS prefers direct debit payments, but in the interest of practicality, the agency doesn't always require them. Note that if a revenue officer is assigned to your case, they may require you to set up direct debits if you have defaulted on an installment agreement in the past.

What Is a Financially Verified Installment Agreement?

A Verified Financial Installment Agreement is a type of installment agreement that requires the disclosure of financials through a collection information statement. You may need to provide financial verification if you owe over $50,000, have a history of defaulting on installment agreements, cannot afford the minimum monthly payments, or need more than six years to pay. Revenue officers may also require financial verification at their discretion. Note that sometimes, you can owe up to $250,000 and not be required to submit a financial disclosure.

These payment plans require more effort and generally more paperwork. You need to provide comprehensive information about your assets, liabilities, income, and expenses to the IRS. Typically, the IRS uses Form 433-F, but if you are working with a revenue officer, they may request Form 433-A for individuals or Form 433-B for businesses. 

When to Request an IRS Installment Agreement

You may want to consider an Installment Agreement in the following situations:

• You cannot afford to pay in full and want to spread out payments over time.
• You do not qualify for a settlement through the offer-in-compromise program.
• You cannot borrow money to pay your taxes, or if you have a loan option, the interest rates are higher than the IRS's interest rates.

Check out the resource link above if you want to know more about when to request an Installment Agreement, how to request it, and the type of agreement you should select.

How to Apply for an Installment Agreement

You can apply for an installment agreement online, through the mail, over the phone, or in person. Here are brief instructions on each of these options.

Apply Online – Set up an IRS online account by verifying your identity with ID.me. You need a smartphone, a photo ID, and an email address, and you may have to answer some questions about your credit report to verify your identity. This option is for taxpayers who owe under $50,000.

If you can pay within 180 days of the due date, you can set up a short-term payment plan online for tax debt up to $100,000. A short-term payment plan is basically a promise to pay within the next six months. You don't have to make monthly payments. 

Apply Through the Mail – If you don’t want to use the IRS’s online tool to request a payment plan or you owe too much money to use the online tool, you can fill out and mail in IRS Form 9465 (Installment Agreement Form). This form is mainly for individuals. Businesses can use this form if they are out of business or if they only owe income tax. When you complete the form, it will indicate if you also need to file Form 433-F. 

Apply Over the Phone – You don't have to mail in Form 9465. Instead, you can call the IRS and give them the info from this form over the phone. Then, the agency will approve the request on the phone call or let you know if you need to provide additional information. 

Apply In Person – There are IRS offices in every state and multiple offices in some states. Most offices let you apply for an installment agreement in person, but you may need to make an appointment. Check with the IRS Office Locator to look at the services and options of the office closest to you.

What to Expect While You're on an Installment Agreement

While you are making payments, the IRS will not garnish your wages, seize your bank account, or take other collection actions, but in some cases, the agency may issue a tax lien, particularly if you owe over $250,000 or have a history of defaulting on payment agreements — sometimes, the agency will issue a lien if you owe over $50,000, and if you're not proactive about setting up payments, they may issue a lien anytime you owe over $10,000. If a lien was issued before you set up payments, the IRS may agree to release it if you set up a payment plan and make three satisfactory payments. Unfortunately, you will incur interest and a small penalty while you're on the payment plan. 

The IRS allows you to make certain adjustments to your payment plan, but if the adjustments run counter to your original agreement, you may need to provide financial details. Missing a monthly payment or incurring new tax debt puts you in default of your agreement, but in both of these cases, the IRS will generally work with you (and let you stay on the payment plan) as long as you proactively address the situation. Here are more details and links to more information.

Interest Rates on Installment Agreements

When you are on an installment plan, interest and penalties continue to accrue on the balance. The interest rate updates quarterly, and it's the federal rate plus three points. The late-payment penalty is only 0.25% per month, up to 25% total. 

On IRS Installment Agreements, interest compounds daily.  As a result, sometimes taking out a loan, and repaying the lender can save you money compared to making payments to the IRS. If you can get a loan with a lower interest rate, you may want to consider that instead of an installment plan.

Consequences of Missing a Monthly Payment

When you sign up for an installment agreement, you agree to fulfill the terms and conditions set out by the IRS. Regardless of which type of payment plan you have, missing even one payment means defaulting on that agreement and dealing with whatever consequences may follow. The outcome of missed or late payments depends largely on what you do after missing a payment and how quickly you reach out to the IRS. Generally, there are ways you can reinstate your installment agreement if you make up the missing payment quickly.

Typically, if you miss a payment, the IRS will send you Notice CP523. This notice will tell you the past due amount, and it will give you a deadline. As long as you pay by then, your payment plan should stay active.

Incurring New Tax Debt – Rules About Multiple IRS Payment Plans

When you set up a payment plan, you agree to stay compliant with future tax obligations. But what if you get ready to file a return and realize that you can't pay? In that situation, you may wonder if you can set up two payment plans with the IRS. Strictly, the terms of your installment agreement state that the IRS can put you into default and demand payment in full if you incur a new tax debt. However, in practice, the IRS is often willing to add new tax debt to your existing payment plan. The best move is to contact the agency or a tax pro proactively before the taxes are assessed. That increases your chances of approval. 

Note that an individual or a non-pass-through business can only get a single payment plan. Even if they owe taxes from multiple years, they will make payments on just one installment agreement. However, if you owe taxes on both the individual and corporate levels, you may be able to set up a separate payment plan for the two different tax debts. That is because different entities are involved. If you have a pass-through business such as a partnership or a sole proprietorship, you will typically pay those taxes as an individual.  

Making Modifications to Your IRS Installment Agreement

Once you set up your payment plan, you can make many changes through the online system. Online, you can typically select a new payment date, change your payment amount, or update your banking details. You may also be able to increase the length of your payment term or add a new balance to your existing plan. However, in some cases, the IRS may require you to call and request changes and/or you may need to complete a financial statement. Sometimes, you can request changes using Form 9465.

Appealing an IRS Installment Agreement

If the IRS rejects your Installment Agreement, you can appeal. You can also appeal if the IRS terminates an existing agreement or refuses to accept your request for modifications. The resource linked above takes a look at that process.

Frequently Asked Questions About Installment Agreements

What if I can't pay taxes in full?

The IRS may allow you to set up an installment agreement. The IRS offers a variety of different payment plans with different terms, and you may be able to get up to 10 years to repay back taxes.

How do I apply for an installment agreement?

You can apply for an installment agreement on the IRS's website, by filing Form 9465, or by calling the IRS. You can also go to an IRS office to request payments in person. If you're e-filing a tax return and you want to set up payments, you can attach Form 9465 to your return electronically, or you can ask your tax preparer to do this for you.

What if I cannot afford an installment agreement?

If you cannot afford to make payments, you may want to look into an offer in compromise. That's where you make a lump sum payment, and the IRS waives the rest of the balance due. Alternatively, if you have very limited income and assets, you may be able to get your account marked as currently non-collectible. That way, you don't have to make payments, but the IRS also won't try to collect the debt from you.

Why did the IRS reject my installment agreement?

The IRS may reject your installment agreement request if you have unfiled returns, your financial statement indicates that you can afford to pay in full, or you have a history of defaulting on payment plans. Find out why the IRs rejected your payment plan and see if you can rectify the situation. If not, reach out to a tax pro for help. 

Can I change my payment plan?

You can make some changes to your payment plan online, by filing a new Form 9465, or by calling the IRS. If your change results in you needing longer to pay or paying less than the required minimum payment, the IRS may require you to fill out financial forms. 

Check out the link above to see more common questions and answers about IRS Installment Agreements.

Innocent Spouse Relief: Guides, Types, Rules & Forms

When you file a joint tax return with your spouse, both of you are liable for all of the tax, penalties, and interest. Even if all of the tax due was from your spouse's income, you are still liable. Because of this, the IRS or the states can legally go after both spouses or just one spouse for the entire bill on a joint return.

Unfortunately, even if you get divorced and the decree says that your ex is responsible for the bill, the IRS can still go after you. Luckily, there is innocent spouse relief (ISR). Innocent spouse relief applies in situations where it would be unjust to hold both of you responsible for the joint tax liability.

Do you Qualify for Innocent Spouse Relief?

This tool below will help determine if you are a candidate to qualify for innocent spouse relief. 

What Is the IRS Innocent Spouse Rule?

The IRS's innocent spouse rule offers relief to taxpayers in situations where it would be unfair to hold them responsible for their spouse or former spouse's taxes. There are three different types of innocent spouse relief, and they all have different rules and requirements. However, they all apply in cases where a couple has filed a joint return and one person wants or needs relief from the other one's tax bill. 

The person who applies for this type of relief is called the requesting spouse. If you qualify for relief as the requesting spouse, the IRS will basically declare that you are not liable for the taxes of your spouse or former spouse. Concerned about a tax bill due to your spouse or ex-spouse's actions? Want to know about your options? To help you out, this guide provides an overview of the three types of relief from innocent spouses, and it has links to pages with more information about this IRS program. 

Classic Innocent Spouse Relief

This program is based on the IRS's original type of innocent spouse relief. There are specific qualification requirements, and the issue must be related to an understatement of tax on a joint return. For instance, if your spouse underreported income on your tax return without your knowledge and that led to a tax bill, you may want to apply for this type of relief. Similarly, this option can also apply in situations where your spouse incorrectly claimed a credit that lowered the tax bill.

Fortunately, if the IRS accepts your request and decides to grant innocent spouse relief, the IRS does not hold you liable for the tax amount related to your spouse or former spouse's unreported income. The application process can be complicated so you should consider working with a tax professional. To qualify, you must not have known about the understatement of tax. But you can't just say that you didn't know. You also have to prove that there was no reason for you to know. When reviewing this issue, the IRS takes multiple factors into account including your education, your involvement in the family finances, and whether or not you benefited from your spouse or ex-spouse's actions.   

Separation of Liability Relief

With this type of relief, the IRS allocates the taxes on your joint tax return between you and your spouse/ex-spouse, as if you filed your tax return separately. Allocation does not have to be half and half. It varies based on who’s responsible for what. To give you a quick example, imagine that your spouse earned $100,000 and you earned $50,000. When the IRS separates your liability, it makes you responsible for the tax related to your $50,000 in income, and it holds your spouse responsible for the tax related to their $100,000 in income.

You can only apply for separation of liability relief if you don't meet the criteria to apply for traditional spouse relief. Additionally, your marriage must be over. You must be widowed, separated, or divorced. Generally, to qualify as separated, you must have lived apart for at least a year and you must no longer have a romantic relationship. If the IRS has reason to believe that you are still together or that your spouse is going to move back in, it won't let you get this type of relief even if you don't live together. 

IRS Equitable Tax Relief

You can apply for this type of relief if you have understated or underpaid tax. As indicated above, understated tax occurs when someone fails to report income or claims credits they don't deserve. As a result of these actions, their tax return shows that they owe less than they really do. In other words, the tax return understates their tax bill. Underpaid tax, in contrast, occurs when the tax return shows the correct tax due, but it has not been paid. 

Equitable relief helps people who don’t qualify for the other types of relief. For instance, this might apply in a situation where you believed that your spouse paid the tax bill, but instead, they took their secret lover on a cruise. To qualify for this type of relief, you must prove that it would be unfair for the IRS to hold you responsible.

How to Request Innocent Spouse Relief

If you believe that you should not be held responsible for taxes owed because of erroneous information provided by your spouse or former spouse, you may be eligible for innocent spouse relief. Innocent spouse relief may also be available if your spouse failed to disclose important information, or if you were unaware of an underpayment or understatement of tax.

To request innocent spouse relief, you must file Form 8857 with the IRS. You must complete and sign the form under penalties of perjury, and you must include a statement explaining why you believe you should qualify for innocent spouse relief. If you are requesting innocent spouse relief from joint and several liability for tax, interest, and/or penalties, you must also attach a copy of your federal income tax return for the year in question.

Once your Form 8857 is received, the IRS will send you a notice requesting additional information or documentation if needed. The IRS will also notify your spouse or ex-spouse so they can make their case. Unfortunately, there are no exceptions to this rule, but the IRS won't reveal your contact details to your spouse. Once all required information has been received from the requesting spouse and the other spouse or ex-spouse, the IRS will review the case and make a determination. If the IRS grants innocent spouse relief, you will no longer be held responsible for the unpaid taxes, interest, and/or penalties that were due to your spouse. Of course, however, you will still be responsible for your own portion of the taxes. If your request is denied, you have the right to appeal the decision.

Frequently Asked ISR Questions

To help you know what to expect, we've put together some of the most commonly asked questions about innocent spouse relief. The above link has questions and answers about innocent spouse relief, equitable relief, and separation of liability. Alternatively, you can also contact a tax professional. They can answer your questions and help you decide if this is the right program for your situation. 

Innocent Spouse Tax Relief Help and Services

Not all tax professionals and tax companies have experience in helping with innocent spouse cases. At TaxCure, we have made it easy to quickly find professionals that specifically can help with innocent spouse cases. You can click this link to see top-rated tax professionals that have experience with innocent spouse, or you can start your search below and select the applicable tax agencies as well as your tax problem and/or desired solution. Once you narrow down your search to a few contenders, give them a call to talk about your tax problems and decide if they are the right professional for you. 

What Is an IRS Offer in Compromise: Settling Taxes for Less

An offer in compromise is when the IRS lets you pay off your federal tax debt for less than you owe. Many states (but not all) will also let you compromise on your taxes. An IRS Offer in Compromise allows a taxpayer to make an offer for less than the total amount owed on their tax bill. If the IRS accepts the offer, you pay less than you owe, and the IRS wipes clean the rest of the tax debt. 

To help you determine if the IRS compromise program is right for you, this guide covers the basics, and it has links to resources with more details. More importantly, we provide an interview with Peter Salinger, a ex-IRS Revenue Officer Manager and Appeals Settlement Officer (one of the professionals you can find on TaxCure) who worked for the IRS for 30 years and reviewed over 2,000 Offers in Compromise. 

How to Qualify for an Offer in Compromise

You must meet certain requirements to qualify for an Offer in Compromise. The Internal Revenue Service will only settle tax debt for less than you owe if you meet the qualification criteria. The following statements must be true for you to qualify:

• You have received a bill for the taxes you want to settle.
• You aren't in an active bankruptcy case.
• You have filed all your required tax returns or the IRS has filed for you (subsitute for tax return or SFR)
• You have paid all of your required estimated tax payments for the current year if applicable
• You have made all of your required federal tax deposits for the quarter if you are a business owner with employees

On top of that, you also must meet the eligibility criteria for the specific type of offer you want. There are three main situations where you might qualify to settle your tax bill for less than the full tax liability, and they each have different requirements. 

The IRS Pre-Qualifier Tool

Curious about whether or not you're likely to qualify? Then, you may want to run your numbers through the IRS's pre-qualifier tool. Before doing so, however, you may want to check out our guide to learn about the tool's drawbacks and when it can be useful.

Types of Offers in Compromise

These are the three options you can use if you want to apply for an offer in compromise. 

1. Doubt as to Collectibility (DATC) — This is the most common option. It applies when you can't afford to pay your full IRS tax debt. 
2. Effective/Fair Tax Administration — You may be able to afford to pay in full or pay a larger offer, but the IRS accepts a smaller offer to be equitable. This option applies in cases where it would be unfair to require you to pay the IRS tax debt in full.
3. Doubt as to Liability (DATL) — This applies when you believe that you don't really owe the full tax bill, and the IRS agrees to waive the part of the bill that you don't owe.

How to Apply for an IRS Offer in Compromise?

If you meet the qualification criteria, you can apply for an offer in compromise. You must send the right forms and supporting documentation to the IRS. You also need to make an offer. A tax attorney or tax expert can help you narrow in on an offer amount that is likely to get accepted. They can also help you with the paperwork. 

Required Documents for an Offer In Compromise

Requesting an IRS Offer in Compromise requires a lot of paperwork. Furthermore, you must file everything correctly if you want your offer to be approved. Check out the above link to look at the forms you need to file and to learn more about them. 

IRS Form 656-B

This resource includes details on when to use IRS Form 656-B and how to complete this form when requesting an offer in compromise. This form will identify the tax years and tax types that you would like to compromise. This form also provides details on your offer amount along with the payment terms you are seeking. You should apply with this form if you're applying based on doubt as to collectibility or effective tax administration.

If you're applying with Form 656-B, you also need to include a lot of financial information. The application booklet has the forms you should fill out. If you're an individual, you fill out 433-A. Businesses should fill out Form 433-B. In a lot of cases, you may need to do both of these forms.

IRS Form 656-L

If there is legitimate doubt about the tax amount owed, you may be able to reduce your taxes through an offer in compromise based on doubt as to liability. The normal offer in compromise program people use is when there isn't a doubt to the liability, but there is an inability to pay the balance. 

To file for an offer in compromise for doubt as to liability, you must use IRS form 656-L. This resource explains this OIC program, how to apply for it, and when to look at other alternatives. 

The IRS forms aren't the only documents you need to apply for an offer in compromise. You also need to provide supporting documents. If you apply because you can't afford to pay, you need to include three months' worth of account statements plus proof of all the numbers you put on your application. If you apply based on doubt as to liability, you need to include documents that show you owe less than you do. 

Submitting an Offer

When you apply for an IRS offer in compromise, you have to submit an offer. There is a specific part of the application where you note your offer and how you want to pay it. There are more details on the payment options below. You need to make your offer carefully if you want the IRS to approve your application. The optimal offer varies based on your situation and the type of offer in compromise program you apply for.

How Much Should I Offer the IRS?

Here are some tips on how much you should offer to pay on your tax debt based on the different types of programs. 

Doubt as to collectibility — The IRS only accepts offers if they are for more than the IRS would get in any other situation. In other words, your offer needs to be more than the IRS could collect through wage garnishments or seizing assets. You will need to take your monthly income, expenses, assets, debts, and future income into account when calculating this offer. 

Effective tax administration — The IRS will accept your offer if it's fair and requiring you to pay more would lead to economic hardship. You also have to take your finances into account when choosing the offer amount.

Doubt as to liability — Your offer should reflect the amount that you believe that you truly owe. With this program, you're asking the IRS to settle the part of the tax bill that you believe that you really don't owe. You don't have to take your monthly income or future income into account for this option.

What Is the Minimum Offer Amount on an OIC?

The IRS doesn't have a set minimum offer amount. The minimum amount for you varies based on your situation. That said, you certainly don't want to offer more than you need to. When you work with a tax pro, they can help you narrow in on the sweet spot for your offer.

Special Circumstances When Applying for an IRS Offer

The IRS's OIC requirements are very specific. In particular, the agency has very specific expense allowances that it allows you to use when calculating your offer. For instance, the IRS has certain amounts that it thinks people should spend on housing, transportation, and utilities. 

If you're spending a lot more than the allowed amount, the IRS won't let you take those expenses into account when calculating how much you can afford to pay. However, if you have special circumstances that require you to spend more, you can explain that in your application. 

What Happens After the IRS Accepts Your Offer?

If the IRS accepts your offer, you must make the payment within the time frame specified in your offer. After your payment, you are in good standing, and you don’t owe anything else for the tax period where your tax debt was settled. However, you will need to stay in tax compliance for five years going forward, or the IRS can rescind the offer and demand full payment if you don't stay compliant.

Paying for Your Offer in Compromise Settlement

If the IRS accepts your Offer in Compromise, there are two main payment options. When you apply, you choose the method that works best for your situation. You can opt to pay off the offer in a lump sum or what some call a cash offer, you have to pay the offer within five months or if you do a defferred payments offer or periodic payments offer, then you have to pay it off within 24 months.

You also have to send an initial payment with your application if you apply based on doubt as to collectibility. There is also an application fee. If you apply based on doubt as to liability, you don't have to send an initial payment or the application fee. Check out this resource to learn more about how the different payment options work and how they affect your offer amount.

What Happens If the IRS Rejects Your Offer?

If the IRS rejects your offer, the full tax liability is due. You should make arrangements to pay off the tax debt. For instance, you may need to set up monthly payments or look for another resolution option. Alternatively, if you don't agree with the reason for the rejection, you can appeal.

How to Appeal a Rejection of an Offer In Compromise

The IRS may return your offer if you don't meet the requirements or haven't provided the right information. If you submit everything and the IRS doesn't agree with the offer, it can reject your application, but luckily, you can appeal. Look at this resource to check out the reasons why an IRS Offer in Compromise may be rejected, and learn how to appeal a rejection.

Offer in Compromise FAQ

Even if you read all the resources above, you'll probably still have questions about the offer in compromise program. This is one of the most appealing IRS programs because it can help you to save so much money on your tax bill, but it's also one of the most confusing programs. Follow the above link to look at answers to the most common questions about the IRS’s OIC program.

2021 Updates to the IRS Offer-in-Compromise Policy

As of November 1, 2021, the IRS has updated its OIC policies to make the process easier for taxpayers. In the past, the IRS kept tax refunds from taxpayers who had been approved for an OIC in the same calendar year. 

For example, if someone was approved for an OIC on their 2017 and 2018 taxes in 2020 and they earned a refund when they filed their 2020 tax return, the IRS had the right to keep that refund. Under the new rules, the IRS will no longer keep these refunds. 

However, the IRS can still keep refunds that you earn while the application is pending. However, if a taxpayer is experiencing financial hardship, they can ask the IRS to not keep the refund. Then, the IRS will look at the exact amount of money the taxpayer needs for their hardship, and the IRS will send the taxpayer that amount of money from the refund. The IRS can keep the rest of the refund.

Other Things to Know About IRS Offers in Compromise

Still, have more questions about what an IRS offer in compromise is? Again, it's when the IRS agrees to let you settle your tax bill for less than you owe. This can happen if you can't afford to pay, it would be unfair to make you pay, or you don't really owe the tax bill. Here's a breakdown of some more details. 

How the IRS Decides Whether to Accept an Offer in Compromise

As explained above, there are different criteria for each type of offer in compromise. The IRS looks to see if you meet the criteria. Then, the agency decides whether or not to accept your offer. If the IRS thinks you can pay more, you legitimately owe the tax, and it would be fair to make you pay it, the agency probably won't accept your offer.

Offer in Compromise Acceptance Rates

The IRS rejects most offers. Only 30.7% of all offers were accepted in 2021. This means that the IRS rejected almost 70% of applications. Generally, you can only get approved if you have serious financial issues and you can't afford to pay more than your offer. 

There is no time in the recent past that the IRS has accepted more than half of the applications to this program. The highest acceptance rate was in 2016, and it was just 42.8%, meaning the agency rejected 57.2% of all applications. If you want to boost your chances of success, you should work with a tax professional who has experience with this program.

Other Options: Alternatives to the OIC Program

If you don't qualify for an OIC, you should look into other options. The IRS has many different programs to help taxpayers get caught up on back taxes. Depending on your situation, you may want to look into the following programs:

• Hardship Status — If you can't afford to pay but you don't meet all of the offer in compromise criteria. 
• Innocent Spouse Relief — If the tax debt is due to your spouse or former spouse's actions and you didn't know that they understated or underpaid the tax or it would be unfair to hold you responsible for other reasons.
• Monthly Payment Plans — If you can afford to make monthly payments on your tax debt.
• Penalty Abatement — If you want to ask the IRS to remove penalties from your account. This can be used in conjunction with the other resolution options. 

When you contact a tax professional to talk about your account. They can help you determine which of these alternatives might be the best option for your situation. 

What Is an Offer in Compromise on State Taxes?

A state tax offer in compromise is when the state agrees to let you pay off your state taxes for less than you owe. Some states offer a version of an offer in compromise program similar to the IRS. Others have offers in compromise programs with different rules and requirements. Some states do not offer an offer in compromise at all. 

Each state agency has its own tax resolution solutions. Want to know if your state lets people settle taxes for less than they owe? Then, check out the links below. They have details on the resolution options for back taxes in each state.

• Arizona Offer in Compromise
• Arkansas Offer in Compromise
• California FTB Offer in Compromise
• Colorado Offer in Compromise
• Connecticut Offer in Compromise
• Georgia Offer in Compromise
• Illinois Offer in Compromise
• Indiana Offer in Compromise
• Iowa Offer in Compromise
• Maryland Offer in Compromise
• Massachusetts Offer in Compromise
• Michigan Offer in Compromise
• Minnesota Tax Compromise
• Mississippi Offer in Compromise
• Missouri Offer in Compromise
• New Jersey Closing Agreement
• New York Offer in Compromise
• North Carolina Offer in Compromise
• Ohio Offer in Compromise
• Oklahoma Offer in Compromise
• Pennsylvania Tax Forgiveness
• South Carolina Offer in Compromise
• Tennessee Offer in Compromise
• Utah Offer in Compromise
• Wisconsin Offer in Compromise
• Virginia Offer in Compromise

How OIC Tax Services Work

When you hire a tax professional to help you, they start by talking about your situation. They help you determine if you might qualify for this program, and if it looks likely, they'll tell you how much their offer in compromise services cost and help you apply. If this doesn't appear to be the ideal option for your situation, the tax professional will help you consider other options. 

When to Hire a Tax Expert to Help You

Wondering if you should hire a tax expert to help you apply for an offer? In most cases, the answer is yes, but if you're feeling brave, you can always try to submit the OIC application on your own. Here are some signs that you should consider calling a pro to help you.

• You have never applied for an offer in compromise in the past. Tax pros are experienced with this program. They deal with these applications on a regular basis and know how to complete them correctly.
• Your last offer was rejected. A tax pro can help you review your rejected application and help you decide how to apply again.
• You have a professional file your tax return. If you don't normally prepare your own tax returns, the paperwork required for this program might be too intense for you.
• You want to get the lowest offer possible. Again, a tax professional can help you find the Goldilocks spot. They can help you narrow in on an offer that is as low as possible for your budget but high enough to get accepted by the IRS. 
• You disagree with the tax bill. Arguing a disagreement with a tax liability can be tricky. Tax experts have intimate knowledge of the tax codes, and they use their knowledge to your advantage. 
• You're tired of dealing with the IRS. The IRS can be exhausting. When you hire a tax pro, they deal with the IRS on your behalf. 

Licensed professionals such as Enrolled Agents, CPAs, or Tax Attorneys can prepare all of the documents you need for an Offer in Compromise. They can help you negotiate a settlement where you pay less than you owe. If you are looking for a list of tax professionals with an offer in compromise experience, you can find experienced tax professionals here, or you can start your search below. 

Offer in Compromise Success Stories

Experienced tax pros have many stunning success stories about applying for offers in compromise for their clients. We have collected success stories from many of the tax pros featured on the Taxcure marketplace. To see how OIC applications work and to learn more about how a professional can help guide you to the best results possible, check out the OIC success story page. 

Disclaimer: The content on this website is for educational purposes only and does not serve as legal or tax advice. For specific advice regarding your tax situation, contact a licensed tax professional or tax attorney.

IRS Penalty Abatement: Removing Penalties Owed

If you don’t believe that you should have to pay certain federal penalties or interest, you can apply for IRS penalty abatement. If you qualify, the IRS removes some or all of your penalties. 

To qualify, you need to prove that there was a reasonable cause for filing or paying late. In some cases, you can qualify if the IRS made an error or delayed your return, or if the IRS gave you bad advice in writing that led to the penalties and interest. You can also receive abatement for the first offense, and as of 2026, the IRS applies first-time abatement automatically.

Key takeaways

• The IRS grants penalty relief for first-time abtement, reasonable cause, or when you incur penalties due to receiving incorrect advice from the IRS.
• First-time abtement applies automatically, but you must apply for reasonable cause or other types of penalty relief. 
• You can apply for penalty relief over the phone, but for best results, put reasonable cause relief requests in writing. 
• Use TaxCure to help you find a tax professional with penalty abatement experience. 

Reasonable Cause for Penalty Abatement

If you can prove that there was a serious reason you didn’t file or pay your taxes, you may qualify for reasonable cause. The IRS accepts multiple situations as reasonable cause, but typically, it includes something like death, illness, hospitalization, natural disasters, or other events out of your control that prevent you from paying or filing on time.  

IRS Delays or Errors

If the IRS made mistakes on your assessment, you may apply for abatement in this category. You can also apply if the IRS caused delays.

Bad Written or Oral Advice From the IRS

When you have penalties due to receiving incorrect advice from the IRS, you can apply for this type of abatement. It is rarely seen. See the link above for more information.

First Time Penalty Abatement

The First Time Penalty Abatement (FTA) program is for taxpayers with a good track record of compliance. If you have late payment penalties or other penalties for the first time in a few years, you may qualify. FTA is sometimes called one-time penalty forgiveness, but it's available more than once. The IRS will apply it automatically if you haven't had any penalties in the three previous tax years and you're compliant with your filing requirements. 

Requesting and Filing for Penalty Abatement

You can request abatement on failure-to-file and failure-to-pay penalties. You can also request abatement on return accuracy penalties, but you need to use special procedures and may even need to take the IRS to court. You can apply verbally, in writing, or by using Form 843. Regardless of the method you choose, you need to explain why you failed to pay the taxes owed. 

 

Sample Penalty Abatement Letter

You can request penalty abatement by writing a letter to the IRS. The letter should explain why you deserve abatement. Fortunately, we have a sample petition letter so you get a sense of what the IRS may expect. It is for information purposes only. We believe calling the IRS can be more effective in many cases.

IRS Form 843 Instructions & Details

You can use IRS Form 843 to claim a refund or ask for an abatement. The link above provides details and instructions for this form.

Applying for Relief on the Estimated Tax Penalty

The estimated tax penalty is generally not abatable, and to get relief from this penalty, you need to request an exclusion when filing your tax return. You can request an exclusion by filing Form 2210 (Underpayment of Estimated Tax by Individuals, Estates, and Trusts). Note that even if the IRS waives an estimated tax penalty, you can still qualify for first-time abatement. 

IRS Form 2210 Instructions and Details

You can file Form 2210 (Underpayment of Estimated Tax by Individuals, Estates, and Trusts) with your individual tax return. This is the same form that you use to calculate your penalty, but it also has a section where you can request relief on some or all of these penalties. 

Automatic Abatement of Late Payment Penalties From 2020 and 2021

In December 2024, the IRS announced its plans to remove $1 billion in late payment penalties related to unpaid taxes from 2020 and 2021. If you owed less than $100,000 in assessed taxes per return during these years, you qualify for penalty relief. You don't have to do anything to get this penalty relief. It applies automatically. The IRS will resume adding these penalties in April 2024. To avoid additional penalties, make payment arrangements by that time. 

How Many Penalties Are Abated Every Year?

The IRS abates a small portion of tax penalties every year. For example, in 2019, the agency abated just 9% of total individual penalties and 12% of failure-to-file and failure-to-pay penalties. Analysts expect that the agency will waive about $250 million in penalties annually when it starts using the automatic first-time abatement program. 

The IRS removes penalties for many different reasons, but the main reason the IRS doesn't abate penalties is that most taxpayers don't request penalty abatement. In cases where taxpayers request abatement, the IRS often denies the first request, and although they are allowed to appeal, most taxpayers don't. 

If you want to get tax penalties abated, you need to be proactive about contacting the IRS, and you need to be willing to appeal a denial. Additionally, you need to take steps to increase your chance of penalty abatement. 

Tips for Penalty Abatement

If you have tax penalties that you want to get waived, you should follow these tips. They are designed to boost your chance of success:

1. Always take advantage of first-time-abatement — The IRS will automatically remove all penalties related to a first-time offense whether you can show reasonable cause or not. If you don't receive automatic relief, you can request first-time abatement over the phone.
2. Request reasonable cause in writing — Don't call the IRS if you want to request reasonable cause. Instead, make your request in writing and be ready to thoroughly explain your situation. The IRS accepts phone calls on this issue, but written requests are usually more successful. 
3. Use Form 843 to request reasonable cause — Although the IRS allows you to write a letter or use Form 843, you should use the form. It has all of the details you need to include. In contrast, if you write a letter, you may accidentally omit critical information. 
4. Be detailed with reasonable cause requests — When explaining why you were unable to pay or file your return, make sure that you show how the situation affected the rest of your life. For example, if you filed late due to an illness, also explain how the illness prevented you from working or attending events. Then, map out a timeline of what happened. 
5. Demonstrate past compliance — The IRS is much more likely to abate penalties for people who are generally compliant with tax regulations. Show your past compliance, and explain why you incurred any previous penalties.
6. Follow up — Sometimes, the IRS loses penalty abatement requests. Make sure to follow up on your request and submit additional documentation as needed. 
7. Appeal denials — If the IRS denies your request for penalty abatement, always appeal. Most first-round denials are computer-generated, and you will get more favorable results by talking with a real person.

Also, consider working with a professional. Tax professionals work with the IRS every day and they understand what the agency wants to see with penalty abatement requests. 

Mistakes to Avoid With Penalty Abatement

When you're trying to get penalties removed from your account, you may want to avoid paying the penalties. If you meet certain criteria (such as the IRS sending a Final Notice of Intent to Levy), you can request a Collection Due Process (CDP) hearing which gives you a chance to explain your situation to the IRS. 

If you're applying for reasonable cause on a failure-to-file penalty, make sure that you don't claim financial hardship or reliance on a tax professional. The IRS will not accept either of these two excuses as reasonable cause in this situation, and the agency has won many court cases fighting this issue. 

The IRS doesn't accept financial hardship as a reason for not filing because the agency offers a number of free filing tools and workshops. Additionally, the agency tends to reject claims related to incorrect advice from tax pros because filing rules and deadlines are well-publicized to the general public. 

Finally, remember to keep the statute of limitations in mind. You must apply for penalty abatement within three years of the date the return was filed or within two years of the date the penalty was paid. 

What to Expect When You Apply for Penalty Abatement

The process varies based on the type of penalties and how you request abatement. If you request first-time abatement over the phone, you can get instant approval, but the IRS may take around three weeks to credit your account. 

The IRS takes two to three months to review a written request for penalty abatement due to reasonable cause, and if you need to appeal their decision, the process can take six to 12 months. 

Penalty Abatement Service and Help

When you work with tax services professionals, they gather the necessary tax records and prove to the IRS that the penalties should be removed. These services reduce your overall taxes and make your payments smaller. Here’s more information on that process.

You can find a list of tax professionals with penalty abatement experience by doing a search below and then using the search solution filters to filter by "penalty abatement."

FAQs About IRS Penalty Abatement

When does the IRS offer penalty relief?

The IRS offers penalty relief based on first-time abatement (you haven't incurred any penalties in the last three tax years), reasonable cause (events out of your control lead to the penalty), and statutory exception (you were in a combat zone or federally declared disaster area. You can also get a waiver if you incur a penalty due to bad advice from the IRS.

Which penalties does the IRS abate?

If you qualify, the IRS may abate penalties related to late filing, late payment, or late deposits of payroll taxes. the IRS may also be willing to abate accuracy-related penalties and penalties for not filing information returns. If you're unsure, contact a tax professional for guidance. Different types of relief apply to different penalties. For example, you can get reasonable cause on an accuracy-related penalty, but it doesn't qualify for first-time abatement.

What if I need help with penalty abatement?

Then, reach out to a tax professional who has experience with IRS penalties. They'll be able to help you apply for relief, by building a persuaive narrative to the IRS based on the remedies available under the tax code. If you don't qualify for penalty relief, they can help you explore other options such as an offer in compromise based on doubt as to liability or requesting a refund after paying. 

 

How to Qualify for IRS Offer in Compromise: Qualifications & Eligibility Requirements

An offer in compromise lets you pay off your tax debt for less than you owe. This is one of the hardest IRS programs to qualify for, but if you can't afford to pay your full tax liability (or if you doubt that you owe the tax), you should look into it. Wondering how to qualify for an offer in compromise? Here is a look at the criteria you need to meet. 

Note that there are three main situations where the IRS considers an Offer in Compromise (OIC). The IRS will only agree to reduce your tax bill if you meet the general requirements as well as the specific requirements for the program you apply to. 

Offer in Compromise Pre-Qualifiers

To see if you meet the basic criteria to qualify for an IRS offer in compromise, work through these pre-qualifier questions. You must answer yes to all five of these questions if you want to apply for an offer in compromise to settle your tax debt. 

1. Have you filed all required tax returns? 
2. Have you received a bill for at least one tax liability included in your offer in compromise application? 
3. Have you made all of your estimated tax payments for this year? 
4. If you're an employer, have you made all of your required federal tax deposits for the last three quarters? 
5. Do you meet the requirements for one of the specific IRS offers in compromise programs?

Offer in Compromise Qualification Tool

This tool is for informational and educational purposes only and does not constitute legal or tax advice. Always consult a qualified tax professional regarding your specific situation. Use of this tool is at your own risk.

This tool is for educational use only and not tax or legal advice. Consult a professional for your situation.

What to Do If You Don't Meet the Pre-Qualification Criteria for an Offer in Compromise

However, even if you answered no to these questions, you may still want to reach out to a tax professional to talk about an offer in compromise. They can tell you what you need to do to meet the pre-qualification criteria, and then, they can guide you through the rest of the application process. They can also talk with you about your situation to help you determine if you're likely to qualify for other IRS programs. To get a deeper understanding of the importance of working with a tax professional, check out our OIC success stories.  

For instance, if you have unfiled tax returns, your tax pro can help you file them, and then, you can start the offer in compromise paperwork. If you're behind on your required estimated tax payments or required federal deposits,  get caught up, and then, get ready to apply. 

If you haven't received a bill for the tax debt, wait until you receive one. This usually only applies to people who have unfiled returns or who have recently filed a return for the tax period in question. However, if you think your tax bill got lost in the mail, you can get a tax professional to contact the IRS and see how much you owe, or you can set up an IRS online account to check the amount of your tax debt.

Now let's look at the requirements for each of the different types of IRS offer in compromise programs. Each of these programs has a slightly confusing name, but the concepts are relatively clear. 

1. How to Qualify for OIC Doubt as to Collectibility

To qualify for this IRS offer in compromise program, you must convince the IRS that it is impossible to collect the full amount of your tax debt. This program is called "doubt as to collectability" because it applies in situations where the IRS doubts that it will be able to collect all of the tax debt in the future. So, the agency agrees to reduce your tax bill and let you pay less than you owe.

How does the IRS decide who qualifies? The IRS looks closely at every applicant's financial situation, and it uses that information to determine whether or not the agency should reduce the tax bill. When you apply, you have to fill out paperwork that asks for very detailed information about your finances. Basically, you tell the IRS about all of your income, every single bill that you have, all of your debts including tax debts from states, and the value of every significant asset that you own. 

Then, you offer how much you want to pay. Finally, an IRS agent looks at your application (Form 656-B) and decides whether or not your offer qualifies. For this OIC program, the agency will only accept offers that match your reasonable collection potential. 

How the IRS Decides if You Qualify for a Tax Debt Settlement

To determine your collectibility status, the IRS considers the following three questions. If you answer “no” to these questions, your offer has a higher chance of being accepted.

• Would the IRS be able to collect more through forced collections than by accepting your offer? The IRS needs to believe it is getting the best deal possible.
• Is your financial situation going to improve over time? If the IRS believes it could collect the full tax debt in the next few years, it probably won’t accept the offer.
• Would other people think the offer was inappropriate? The IRS won't accept an offer that is absurdly low. The offer needs to be reasonable.

If you answered "yes" to any of these questions, you're unlikely to qualify for this type of offer in compromise. However, that doesn't mean that you wouldn't qualify to settle your IRS tax debt through one of the other programs. Look at the qualification criteria in the other two categories to see if they apply to your situation. But first, let's check out more details about your collection potential.

Reasonable Collection Potential

Your reasonable collection potential (RCP) is the amount that the IRS could collect if it exercised all of its collection rights. Imagine that the IRS garnishes your wages and seizes and sells all of your assets. How much money would the IRS get if it did that? Nothing? $10,000? $100,000? That's your collection potential, and it's the amount of money the IRS wants to see reflected in your offer. It's a different number for every taxpayer.

When you fill out the OIC application, the paperwork guides you through calculations to help you find this number. The IRS calculates your RCP using Form 433-A (OIC) for individuals and 433-B (OIC) for businesses. For both individuals and businesses, calculating the RCP starts with a certain percentage of the equity in your assets, and it adds all of that together. Then, it asks you to list your monthly income and basic living expenses. The difference is your disposable income, and you must include 12 or 24 months of disposable income in your offer. 

If you apply to pay off the offer in a lump sum, you include 12 months of disposable income, and if you want to pay off the settlement over a 24-month period, you need to include 24 months of your disposable income in your offer. If you work through these calculations and you can afford to pay the full tax liability, you generally won't qualify for an offer in compromise. Instead, the IRS will most likely require you to make monthly payments on your tax debt.

In some situations, you may be able to pay the bill in full but it wouldn't be fair for the IRS to require you to do so. Or you may need to settle the bill but you need to pay less than your RCP. In these cases, you typically won't be able to qualify for an offer in compromise based on doubt as to collectibility. However, you may qualify under the next program — effective tax administration. 

2. How To Qualify for Effective Tax Administration

If the IRS believes that paying your taxes would create financial hardship, you may qualify for an OIC under this category. This also applies in situations where paying the taxes owed would be very unfair. Again, you must meet the basic qualifications outlined above which include being up to date on filing your tax returns, paying quarterly estimated tax payments, and making federal tax deposits if you're an employer. 

To apply for this program, you use the same application as you do when you apply based on doubt as to collectability. However, you also must explain why your offer needs to be lower than your collection potential. The explanation varies greatly depending on your circumstances. To boost your chances of getting accepted, you should work with a tax pro who understands what the IRS wants to see. 

Example of ETA

For instance, imagine that your RCP is based on the equity in your home. But you live on a fixed income. If you sold your home, you wouldn't be able to afford rent or other basic living expenses in your area. It would be unfair and unreasonable for the IRS to ask you to sell your home, and it would cause you economic hardship. This is just an example of the type of scenario where you might want to apply for this program. This example does not guarantee that the IRS would accept an offer in this situation. 

3. How to Qualify for OIC Doubt as to Liability

This offer in compromise program applies when there is a legitimate doubt that your tax bill is correct. To qualify for this program, you don't have to prove that you can't afford to pay the full tax liability. Instead, you have to prove that you don't really owe the tax. 

Why would you have a tax bill that you don't really owe? This can happen if a tax assessor makes a mistake or if an audit examiner refuses to accept your documents. This can also come into play if you have new documents proving you owe less tax.

Once again, you must be up to date on your tax filing and payment obligations. That is a requirement for all of the offer in compromise programs. Then, you must complete the application which is Form 656-L. Note that this is a different form than the other two programs require. 

Other Eligibility Requirements for an Offer in Compromise

To recap, if you meet the pre-qualification requirements and your situation falls into one of the above three categories, you may qualify for an IRS offer in compromise. However, there are a few additional requirements:

• You cannot currently be going through bankruptcy.
• You must have filed all federal tax returns you are required to file.
• If a business wants to apply, it must have made all required federal tax deposits for the current quarter and the last two quarters.
• If a sole proprietor, a self-employed person, or a partner wants to apply, they must have made all of their estimated quarterly tax payments for the current year. 
• You must file all of the required paperwork — Form 656-B or 656-L plus any additional required forms such as the 433-A or 433-B.
• You must include all of the supporting documents requested in the application.
• You must pay the OIC application fee ($205 dollars as of 2022) unless you meet the low-income certification guidelines. For the IRS to consider a taxpayer low-income, their income must be at or below 250% of the federal poverty level. This is based on the adjusted gross income reported on your last tax return, or you can use the monthly income noted in your offer in compromise application. There is no application fee for Form 656-L.
• You must pay the required initial payment based on the type of offer you select. You don't have to make this payment if you qualify as low income or if you apply based on doubt as to liability. 

The IRS Has Streamlined Offer Requirements

Over a decade ago, the IRS streamlined the OIC program with the Fresh Start Initiative. As a result, in 2012, the IRS changed how it calculates future income. Specifically, Lump Sum offers now only look at one year of future income, and Short-Term Periodic offers now only look at two years of income. Moreover, the IRS will consider state taxes and student loans in calculating monthly living expenses. These changes made the OIC program available to a larger group of taxpayers.

More recently, in 2021, the IRS updated how it handles tax refunds when you apply for an offer in compromise. In the past, you were required to let the IRS keep your tax refund if you wanted to qualify for an offer in compromise. Now, the IRS will keep your refund and apply it to your tax bill while your offer is pending — however, you can get some or all of the refund if you prove that you're experiencing a specific financial hardship. Once the offer is accepted, you get to keep any refunds you earn from a tax return from the year the offer is accepted. 

Payment Requirements for an Offer in Compromise

Now, you understand the basic requirements for an offer in compromise. You also know which paperwork you need to fill out. On top of meeting those two requirements, you must meet the payment requirements if you want to qualify for an offer in compromise. 

If you apply to pay your offer in a lump sum, you must send 20% of the lump sum offer as an initial payment with your application. If you want to pay the offer in 24 installments over a two-year period, you need to include the first month's payment with your application. You should also send in monthly payments while the IRS reviews your offer. 

Failure to meet these payment requirements will cause the IRS to reject or return your offer. However, if you meet the low-income certification guidelines, you don't have to make these initial payments. You only have to pay if the IRS accepts your offer. You also don't have to make initial payments when you apply based on doubt as to liability. 

Requirements After the IRS Accepts Your Offer

Once the IRS accepts your offer, you must make the payment by the deadline. For a lump sum offer, the payment is due within five months after the IRS accepts your offer. If you selected periodic payments, the payments must all be on time, and the entire offer amount must be paid off within 24 months or fewer. 

Then, after you've paid the offer, your journey is still not over. You have to meet a few more requirements or the IRS can retroactively disqualify your offer and demand full payment of the tax liability. In particular, you must stay current with tax filing and payment obligations for five years after your offer gets accepted. 

Do I Qualify for an IRS Offer in Compromise?

Only the IRS can determine if you qualify, but a tax expert can help you determine if you're likely to qualify. They can also help you file the paperwork and negotiate the best offer possible with the IRS.  Do you want to see if you might qualify to settle your tax debt for less than you owe? Then, you should reach out to a local tax professional for help today.

Applying for an offer In compromise is time-consuming and confusing, and you should get help from a licensed tax professional. You can use the search box below to look for tax pros in your area and once the search results load, use a filter under solutions and select "offer in compromise" to find tax pros with offer in compromise experience.

Disclaimer: Not legal or tax advice. This article should not be used as a substitute for the advice of a competent attorney or tax professional admitted or authorized to practice in your jurisdiction.