Complete tax debt forgiveness is possible only if the IRS cannot collect within a ten-year period. You may not possess the ability to pay any amount toward your tax liability, which will prevent you from facing collection action. However, if you have some payment ability, you may be able to reduce your tax debt or pay in installments.
To avoid paying your full tax debt, here are your options:
Currently Not Collectible (CNC)
You may be able to postpone paying your tax debt and also stop IRS collection actions if you obtain the status of CNC. The IRS will grant this status only if you cannot afford to pay any amount toward your back tax debt. If you are only able to meet basic, allowable living expenses, you may qualify for CNC status. If your financial situation does not improve before the debt expires, you may be able to avoid paying anything towards your tax debt.
Offer in Compromise (OIC)
You can get your tax debt reduced if you qualify for an OIC. If you cannot afford to pay your entire tax debt), you may get your tax debt reduced to an amount that you can afford. The Offer in Compromise is notoriously difficult to qualify for, but may prove to be an excellent solution if you’re eligible.
Partial Payment Installment Agreement (PPIA)
Certain Installment Agreements also allow for tax debt reduction. Under a Partial Payment Installment Agreement, you pay a reduced amount in back taxes in monthly installments. Again, to qualify for PPIA, you need to be financially incapable of paying the entire tax debt.