When you owe the IRS big, and ignore them, they can empty your bank account and come after your wages or other income. Hiding your head in the sand is never a good idea with the IRS. If you can’t afford to pay the debt in full, you can set up an installment agreement and prevent them from harassing you to the grave.
It’s fear that keeps most people from facing the IRS … and quite reasonably placed fear, I might add. The IRS is the most hostile and aggressive collector on the planet and won’t hesitate to take everything you have to feed the beast. The purpose of this site is to help you understand the process, how to stand up to the IRS, and how to overcome your fear through knowledge.
If you go to battle with the IRS, they may only get what you can afford to pay. That is to say, they must leave you with a certain amount of money to support yourself, and may only take what’s left over. If you can’t afford to pay much, don’t worry about it. So long as you understand your rights and don’t avoid the confrontation, the IRS may only take what you can afford to give. If you ignore them, and then you give up those rights, they will seize anything and everything they can get their hands on.
Also, the IRS usually has only 10 years to collect from you after you file your return or the tax is assessed. An assessment usually occurs after an audit is completed. For example, if you file your 2010 tax return on March 15, 2014, your 10 year collection statute 6 for tax year 2010 begins on March 16, 2014 … so the IRS has until around March 16, 201 to collect on that debt.
That 10 year collection statute, and the fact that the IRS may only collect what you can afford to pay, get us to the IRS Partial Pay Installment Agreement. You must pay the collector what you can afford until that 10 year period expires. At that time, the debt goes away and you get a fresh start. If you can run out the clock by making small payments until the 10 years are up, you have what we call a Partial Pay Installment Agreement. You will pay until the time is up and whatever is left is forgiven (in most cases).
You might be wondering why Partial Pay Installment Agreements are permitted. Why not require an Offer in Compromise? First, your question assumes that the IRS always does what’s right or logical …
Next, the IRS may prefer to wait and see what happens over those 5 years rather than accepting an Offer in Compromise. Once an OIC is accepted, your debt is eliminated and you can make as much money as you like … and Uncle Sam only gets his usual share, rather than extra money for back taxes. In a partial pay agreement, if your income goes up, your payments go up.
In the example above, let’s say you can afford $150 per month for 2 years, then you get a great job and can afford $5,000 per month. The IRS is going to collect up to $180,000 from you over 5 years (or the total tax of $100,000 from you over 5 years (or the total tax of $100,000 plus accrued interest and penalties over those 5 years). So, their bet paid off.
There are times when the IRS gets the short end of the stick. Let’s say you were going to borrow $20,000 from friends and family to complete the OIC. If they wait and see, and you pay only $150 per month, then they get only that $9,000 … and can’t force you to borrow to pay more.
I hope this brief summary of the IRS Partial Pay Installment Agreement has been helpful. You will find a number of detailed posts on this site on the Installment Agreement.