Tax Settlement

How To Settle IRS Tax Debt

As you work on your taxes in anticipation of the April deadline for filing, you may discover you owe more than you can pay to the IRS. If you choose to skip that payment, this becomes what is known as tax debt. Like credit cards or loans, this debt begins to accumulate interest and late fees. What starts as a small amount can quickly spiral into seemingly insurmountable debt.

Read More: What is tax debt?

If you find yourself needing to reduce or eliminate your tax debt, you aren’t alone. According to the IRS, nearly 18% of Americans don’t pay their taxes. This leaves the U.S. with more than $450 billion in unpaid taxes each year.  Here are some ways for you to settle such a debt and work to prevent it from happening in the future.

Things to consider

Don’t avoid the debt. Many credit card companies and others lenders hound you for payment, and non-payment can affect your credit score. However, the IRS can go a step further and garnish your wages, revoke your passport, reclaim your property and put a lien on your bank accounts. Simply put, resolving tax debt should be at the top of your priorities.

Avoid negotiating alone. Don’t try to take on the IRS by yourself. While there are some options to settle your tax debt that don’t involve direct contact with the the IRS, it’s usually best to work with professionals. The IRS is very good at getting convictions (96% convictions rate), 80% of which result in prison time.

Hire a reputable firm. Tax and debt relief solution companies are plentiful these days, but hiring someone without the right qualifications can compound your problems. Make sure when working with a firm that they have certified public accountants  and certified tax attorneys on staff. It should be accredited by the National Association of Tax Professionals. Also make sure it can act as a power of attorney in your state.

Options to settling tax debt

Offer in Compromise

You may have seen offers on television for settling tax debt for pennies on the dollar. This is often done through the Offer in Compromise program. This program allows taxpayers who owe more than they can afford to pay to settle for less, either in a lump sum or short-term payments. It is worth noting that to qualify for this program, taxpayers must have so few assets that the IRS would rather settle than spend time seizing what little the taxpayer owns.

Penalty abatement

One of the biggest problems with tax debt is the interest and penalty fees that add up. If you have a clean tax payment history and arrange with the IRS a plan to pay off your debt, you may qualify to have your penalties abated.

Partial payment installment agreement

Like an Offer in Compromise, the partial payment installation agreement allows taxpayers to make a series of payments to eliminate tax debt. The program’s payment terms are usually longer, ranging from 36 to 72 months. The overall debt reduction isn’t as generous as the Offer in Compromise, but that also makes it easier to qualify for.

Credit card debt consolidation

One way to forgo hiring a tax attorney and set up your own payment plan is to pay off your tax debt with a credit card. Look for a card that has a 0% introductory APR, such as the Citi Simplicity Card. Make sure that you qualify for a large enough limit to cover your tax debt. It’s also imperative to make sure you can pay off the balance before the intro APR period expires. Paying upwards of 20% in interest if you don’t pay off your balance can put you right back into debt trouble. Check out our options for 0% intro APR cards here.

File for bankruptcy

In extreme circumstances, your best option out of debt may be to file for bankruptcy. Chapter 7 bankruptcy fully discharges allowable debts. Chapter 13 may mean a tax repayment plan after a reduction in your debt owed. Find out if bankruptcy is the right option for you.

Statute of limitations

The IRS has a statute of limitations of 10 years to collect all payments and penalties from taxpayers. In some cases, a tax attorney or CPA may be able to help you navigate the 10-year period for your debt. This can be tricky and requires a lot of paperwork, so don’t rely on this method as a way to get out from under debt without the right team.

Ponzi scheme forgiveness

If you can prove you were the victim of a fraudulent investment operation, known as a  Ponzi scheme, that wiped out your savings, you can have your debt reduced by 30% to 40% and set up a payment plan to resolve your tax debt.

Innocent spouse relief

If you inherited tax debt from a spouse, your situation may qualify for innocent spouse relief. You must prove your spouse incorrectly reported his or her income or deductions and you had no knowledge of this to qualify for this program.


Tax debt can seem like a deep hole that you may never escape from, but remember you have options to make it easier. As soon as you realize you have tax debt to be settled, you need to act. The longer you wait, the more penalties and interest accrue. The IRS will also become more likely to act, seizing property and wages to collect the debt.

Reducing and eliminating your tax debt is a complicated process with a bevy of options. Instead of sifting through them by yourself, talk to a tax professional to sort out what will work best for you. We have built a tax relief tool to help you understand what options are available to you. You will get a no-obligation, free consultation with a qualified expert to help you explore tax debt consolidation and payment strategies.

In addition, if you owe a lot of money to the IRS, it can help to have a tax relief company on your side. The best tax relief companies have tax lawyers and enrolled agents on staff, provide a money-back guarantee and charge competitive rates. Check out which tax relief company is the best fit for you.