Owing money to the IRS is an onerous liability. The sooner an IRS tax problem is resolved the better. There is practically no way in which you can wriggle out of the situation to avoid payment. The IRS does not require any court order to collect its dues from you. If you happen to be a business owner they can simply turn up one day with a padlock, seize all your assets and lock your business up. If you are a salaried employee, they can take over your wages. However, there are a number of options to let you effectively solve your tax problems with the IRS.
The first is by paying off your liability in full. This is the simplest and best way to solve the problem if you possess the wherewithal. If you have ready funds, it becomes easy to pay. If you do not, you can always clear off the dues with the help of borrowed funds. This will work to remove all levies and liens automatically. However, it mostly proves impractical because if you had the money to pay off your taxes in the first place the problem may not have arisen at all.
An alternative solution is to try to get an installment agreement from the IRS to clear the liability over a fixed period. To request an installment agreement you will need to fill IRS form 9465 (Installment Agreement Request) and file it along with your return. If you have already filed your return, you can use the Online Payment Agreement form (OPA) available on the IRS website to make the request provided the due amount comprising of tax, interest and penalties does not exceed $25,000. In one way, this is a loan from the IRS.
The amount due is calculated along with penalty and interest and divided into installments, which you pay in accordance with a payment plan. This is a costly option and even the IRS recommends obtaining a loan from commercial borrowers in preference to an IRS installment plan to clear your tax liability, as their interest charges would be lower than the combined amount of interest and penalties under the Internal Revenue Code. The IRS usually responds within 30 days to let you know if the installment request has been granted. You will also need to fill up and submit form 433A (for wage earners/self employed) or form433B (business owner/employer) to let the IRS determine how much you can pay monthly.
There is another option called Offer-in-Compromise (OIC) that allows the IRS to settle a tax liability on payment of less than the full amount that is due. You can make an Offer-in-Compromise by filling up form 656 and submitting form 433A/433B together with it. Under OIC, the liability can be paid through three payment plans. The first is Lump Sum Cash offer that is payable in five or lesser number of installments.
In this case, 20% of the tax liability needs to be paid along with form 656. The second is a Short Term Periodic Offer under which the liability is payable over twenty-four months with the first installment paid along with form 656. The last plan is the Deferred Periodic Payment Offer. In this case also, the first installment is paid along with form 656. The liability is required to be paid over the remaining part of the statutory period for collecting the tax. Usually this period is ten years commencing from the date the tax liability was assessed. If the IRS is unable to collect the full amount within the balance period, whatever remains as balance stands null and void. The IRS accepts an OIC only if it considers it unlikely that the tax liability can be collected in full.
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