IRS Says You Owe Money

Sometimes the IRS will let you pay the full amount you owe in monthly payments over a longer period of time. This is called a “payment plan.” It is also sometimes called an “installment agreement.” There are different types of installment agreements, with different rules.

If you qualify for a “streamlined” installment agreement, you probably won’t have to provide financial information to the IRS. You can apply online, over the phone, or by mail.

Here are some of the basic rules:

• You must owe $50,000 or less in combined individual income tax, penalties and interest.
• You must be up-to-date with all of your tax returns.
• You must be able to afford monthly payments that will pay off your debt in 72 months or less.
• If you are self-employed, you must be current on your quarterly estimated tax payments.
• If you owe more than $10,000, the IRS will probably file a tax lien as a condition of your installment agreement. The IRS can file a tax lien if you owe less than $10,000, but they usually don’t. (See the Liens section below to find out more.)

If you can’t afford a monthly amount that will pay off your debt within 72 months (six years), you can still apply for an installment agreement. A “partial pay installment agreement” is based on what you can afford.

You will have to give the IRS information about your income, expenses, and assets. You can’t apply online for this type of installment plan. You must be up-to-date on your tax returns. Self-employed people must be current on their quarterly estimated payments.

How to apply

• Apply online, if you qualify.
• Call the phone number on your bill or notice.
• Fill out and mail Form 9465 - Installment Agreement Request.
• If you need help, contact us at Vermont Legal Aid’s Low-Income Taxpayer Clinic. Fill out our form and we will call you back. Your information will be sent to Legal Services Vermont, which screens requests for help for both Vermont Legal Aid and Legal Services Vermont. You can also call us at 1-800-889-2047.

Important things to know

• You will be charged a fee for setting up an installment plan.
• Do not agree to a higher monthly amount than you can afford. If you default (don’t pay), the IRS will charge a fee to reinstate the plan. If the IRS says you must pay more than you can afford, contact us at Vermont Legal Aid’s Low-Income Taxpayer Clinic.
• If your income goes down after you set up an installment plan, you should call the IRS right away and ask for a modification (a change in the amount you have to pay). Don’t wait until you default (miss a payment).
• If you do not make your payments, the IRS may levy (take) your property or file a lien on your property (if there is not a lien already). Read below to find out more about levies and liens.
• If you owe more than $50,000, or if you need a Partial Pay Installment Agreement, you will probably need to complete an IRS Collection Information Statement. The IRS will tell you whether you need to use the short form (Form 433-F) or the long form (Form 433-A).
• This video tells you how to set up an online payment agreement.

If there is reasonable doubt about how much tax you owe, if you can't pay the full amount or if paying the full amount will create a financial hardship, the IRS may consider an “offer in compromise.”

An offer in compromise allows you to pay less than the full amount you owe. But you will be expected to pay the most you can afford. In some cases, you may be required to pay more than you believe you can afford. The IRS will consider your ability to pay, income, expenses and the equity you have in a home or other property.

Here are some of the basic rules:

• You must be up-to-date with your tax returns (even if you didn’t have to file in the past).
• You will be charged a fee, unless you meet the low-income guidelines.
• You will need to prove your income, assets and expenses with documents.

How to apply

1. Make sure you are eligible.
   Use the Offer in Compromise Pre-Qualifierto see if you are eligible and to prepare a preliminary proposal.
2. Make your offer.
   You'll find step-by-step instructions and all the forms for submitting an offer in the Offer in Compromise Booklet, Form 656-B.
3. Choose a payment option.
   The amount of your first payment will depend on your offer and the payment option you choose.
4. If you need help.
   If you need help, contact us at Vermont Legal Aid’s Low-Income Taxpayer Clinic. Fill out our form and we will call you back. Your information will be sent to Legal Services Vermont, which screens requests for help for both Vermont Legal Aid and Legal Services Vermont. You can also call us at 1-800-889-2047.

If your offer is accepted

1. You must file all required tax returns and make all required tax payments for the next five years. If you don’t file a tax return, or if you have a new IRS debt, your offer will be cancelled. You will not get your money back.
2. Any refunds due to you for the calendar year that your offer is accepted will be used for your tax debt. Refunds do not count towards your offer amount.
3. Federal tax liens are not released until you have met your offer terms.
4. Some offer information is provided for public review at IRS offices.

If your offer is not accepted

You may appeal within 30 days using Request for Appeal of Offer in Compromise, Form 13711.

If you need all your income to cover your necessary living expenses, you can ask the IRS to put your account into a temporary hardship status. This is called “Currently Not Collectible” (CNC). You can stay in this status until your financial situation improves, or until the IRS asks you to update your financial information.

To apply for CNC, call the number on your IRS letter. You will have to give information about your income, assets, and expenses. The IRS might ask you to fill out a collection information form. This is not always required. The IRS will tell you whether you need to use the short form (Form 433-F) or the long form (Form 433-A).  

While your account is in CNC status:

• Interest and penalties will be added to your debt each month.
• Your tax refunds will be applied to your debt.
• If your income increases, the IRS may take your account out of CNC, and ask you to pay your debt.
• The IRS may put a lien on your property. Generally, IRS files a lien if your balance is over $10,000.
• You will receive annual reminders from the IRS showing how much you owe, but as long as you are in this category, the IRS will not ask you to pay.
• Your debt may eventually become uncollectable and be written off. There is a limit on the time the IRS has to collect from you. Generally it is 10 years, but some things can extend the time.

If you can't afford to pay IRS because your income only covers basic living expenses, contact us at Vermont Legal Aid’s Low-Income Taxpayer Clinic. Fill out our form and we will call you back. Your information will be sent to Legal Services Vermont, which screens requests for help for both Vermont Legal Aid and Legal Services Vermont. You can also call us at 1-800-889-2047.

When the IRS puts a “lien” on your property, it does not mean that they have taken it. It means that they have put a claim on it so that they can make sure they get your debt paid back. Liens are filed in the town land records, even if you don’t own any land.

• The IRS must give you notice at least five days before they file the lien.
• The IRS must take the lien off of your property within 30 days after you pay your tax debt, interest and penalties.
• IRS liens last for 10 years. The expiration date is on the lien.
• If a tax lien will make it harder for you to pay your debt, you can object to the lien. You will need proof that the lien will hurt your ability to pay. For example, provide a copy of your employer’s policy that employees with liens will be fired.

A lien will keep you from selling or transferring your house easily. If you are selling your house, the IRS can get money from the buyer before you are paid.

A lien will also affect your credit rating, making it difficult to buy other property.

How to appeal an IRS lien

There are three ways to appeal a lien:

1. You can ask an IRS manager to review your situation.
2. You can request a Collection Due Process hearing with the Office of Appeals. You must request this hearing by the date on your lien notice. If your request to remove the lien is unsuccessful, you will have 30 days to object to that decision.
3. You can also try to work with the IRS so that your debt is paid off some other way.

If you need help, contact us at Vermont Legal Aid’s Low-Income Taxpayer Clinic. Fill out our form and we will call you back. Your information will be sent to Legal Services Vermont, which screens requests for help for both Vermont Legal Aid and Legal Services Vermont. You can also call us at 1-800-889-2047.

A “levy” is different from a lien. When the IRS levies your property, it means they have taken it. The IRS can levy any property that you own, including wages and social security benefits.

Levies must be released when:

• Your debt becomes too old to collect.
• The levy creates an economic hardship.
• A levy can be put on part of your property because the value of your property is more than the debt.
• Releasing the levy will help the IRS collect the debt.

The IRS can’t take any of your property to pay your taxes if you have an installment agreement and you are making your monthly payments. If the IRS decides not to accept your installment agreement, they can’t take your property for 30 days after they tell you their decision not to accept it or during the time that you are appealing an IRS decision.

How to appeal an IRS levy

There are three ways to appeal a levy:

1. You can ask an IRS manager to review your situation.
2. You can request a Collection Due Process hearing with the Office of Appeals. You must request this hearing by the date on your levy notice. If your appeal of the levy is unsuccessful, you will have 30 days to object to that decision.
3. You can also try to work with the IRS so that your debt is paid off some other way, or so your account is placed in hardship status.

How to get help

If a levy is causing you a hardship, call the IRS and tell them that. You may have to answer questions about your income, property and living expenses. If you have a hardship and the IRS doesn’t release the levy, contact us at Vermont Legal Aid’s Low-Income Taxpayer Clinic. Fill out our form and we will call you back. Your information will be sent to Legal Services Vermont, which screens requests for help for both Vermont Legal Aid and Legal Services Vermont. You can also call us at 1-800-889-2047.

Is the IRS trying to collect taxes from you that you think your spouse or ex-spouse should have to pay? Maybe you didn't understand that your taxes weren't paid in full or there is another reason why it may be unfair for you to pay. 

Even if you filed the tax return jointly, you may qualify for “innocent spouse relief.”

The IRS provides three types of relief. To find out if you may be eligible for innocent spouse tax relief and how to file for it, visit the IRS Tax Information for Innocent Spouses website.

To be eligible for this relief:

• You must have filed a joint return with your spouse or ex-spouse.
• This joint return must have had an underreporting or omission of income that you did not know about but your spouse or ex-spouse did.
• You must have had no knowledge of the error.
• Once the error has been identified, the IRS must agree that it is fair to relieve you of the tax in question.
• You must apply for relief within two years of the IRS trying to collect the debt.

If you need help, contact us at Vermont Legal Aid’s Low-Income Taxpayer Clinic. Fill out our form and we will call you back. Your information will be sent to Legal Services Vermont, which screens requests for help for both Vermont Legal Aid and Legal Services Vermont. You can also call us at 1-800-889-2047.

You may be an injured spouse if you file a joint tax return and all or part of your portion of the refund is, or is expected to be, applied (offset) to your spouse's legally enforceable past-due federal tax, state income tax, state unemployment compensation debts, child support, or a federal nontax debt, such as a student loan. If an agency tells you or your spouse that your tax refund will be withheld to pay your spouse’s debt, you may be able to file an “injured spouse” claim with your joint tax return. To find out if you may be eligible for injured spouse tax relief and how to file for it, visit the IRS Tax information for Injured Spouses website.

There are some eligibility requirements to claim injured spouse relief. You must:

• File a joint tax return with your spouse
• Have or expect to have all or part of your share of any tax refund put toward your spouse’s past-due debt

In order to request Injured Spouse Relief, you will need to fill out Form 8379. You should file this form as soon as you know your refund may be at risk of being taken by IRS and applied to your spouse’s qualifying debt. Generally there is a three year window from when the original return was due, or two years from the date you paid the tax that was offset, to request Injured Spouse relief.

If you need help, contact us at Vermont Legal Aid’s Low-Income Taxpayer Clinic. Fill out our form and we will call you back. Your information will be sent to Legal Services Vermont, which screens requests for help for both Vermont Legal Aid and Legal Services Vermont. You can also call us at 1-800-889-2047.