Background

Old tax debts often build from missed filings, underwithheld income, or financial shocks such as job loss or medical expenses. The IRS has multiple collection options short of bankruptcy, and many taxpayers can reach manageable outcomes by documenting their finances and proactively engaging the IRS or a tax professional (IRS: payment plans and collection policies).

How these strategies work

  • Installment agreements: Allow you to pay over time. Options include streamlined and partial-payment plans; the IRS also offers low-cost long-term plans for qualifying balances. Depending on the balance and your ability to pay, an agreement can stop levies if you stay current (see IRS online payment agreement guidance).
  • Offer in Compromise (OIC): A negotiated settlement where the IRS accepts less than the full tax owed when it’s unlikely you can ever pay the full amount. Eligibility requires a complete financial statement and supporting documentation (IRS: Offer in Compromise program).
  • Currently Not Collectible (CNC): If you can’t pay without causing undue hardship, the IRS may temporarily pause collection actions (including levies and garnishments). Taxes still exist and penalties/interest continue to accrue, but enforcement is suspended while CNC stands (IRS: temporarily not collectible).
  • Penalty abatement & procedural relief: If you have reasonable cause (serious illness, natural disaster, or IRS error), you may qualify to have penalties reduced or removed. Interest is generally not abated except in limited circumstances.

In-practice insight

In my practice working with taxpayers for 15+ years, the most successful outcomes start with a full financial worksheet—income, regular expenses, assets and liabilities—and copies of tax notices. Early communication with the IRS and accurate paperwork dramatically improves approval chances for installment agreements or OICs.

Real-world examples

  • Monthly payment plan: A taxpayer with modest debt and steady income secured a streamlined installment agreement, stopping collection while paying an affordable monthly amount. (For practical setup, see our guide on Setting Up an Affordable Installment Agreement.)
  • Partial-pay negotiation: For clients with limited disposable income, a partial-payment installment agreement or a negotiated OIC has reduced monthly burden and prevented liens or wage garnishments. See our piece on Negotiating a Partial-Payment Installment Agreement for pros and cons.

Who may be eligible

  • Taxpayers with documented inability to pay in full.
  • Those current with filing and estimated tax obligations (the IRS typically requires all returns be filed before considering many programs).
  • Individuals with assets or income constraints that make full repayment unlikely.

Practical steps to take now

  1. Gather documentation: tax returns, IRS notices, pay stubs, bank statements, and a monthly budget.
  2. Confirm the assessment and collection statute: the IRS normally has 10 years from assessment to collect (IRS: how long to collect).
  3. Contact the IRS or a tax pro: request an installment agreement, submit Form 656‑B (if applying for an OIC use Form 656), or request CNC status with current financials.
  4. Keep accurate records: log dates, names, and reference numbers for all contacts and agreements.

Common mistakes to avoid

  • Ignoring notices: Silence often leads to liens, enforced levies, and higher costs.
  • Assuming bankruptcy is simpler: Bankruptcy can discharge certain older tax debts in limited circumstances, but it’s not an automatic fix and has long-term credit consequences.
  • Submitting incomplete financials: Omissions slow or block approval for OICs and CNC determinations.

Short FAQ

  • Will the IRS stop collections if I enter a payment plan? Yes—generally the IRS suspends most collection actions while you remain current under an approved installment agreement, but you must stay compliant with future filings and payments.
  • Can interest and penalties be eliminated? Penalties may be abated for reasonable cause; interest is rarely abated.

Useful resources and internal guides

Authoritative sources

Professional disclaimer

This article is educational and not a substitute for personalized tax advice. For guidance tailored to your facts, consult a CPA, tax attorney, or an enrolled agent. In some cases I have recommended third‑party representation; choose a credentialed practitioner and verify their IRS tax professional credentials.

By proactively documenting your finances and choosing the right IRS program, many taxpayers resolve old tax liabilities without filing bankruptcy.