Know the Law: What to Do When You’re Unable to Pay Federal Taxes

Beth L. Fowler
Counsel, Tax Department
Published: Union Leader
November 22, 2020

Q: I lost my job due to the pandemic and cannot pay my federal taxes. What can I do?

A: First, if you have not already done so, file your 2019 tax return. The Internal Revenue Service will not work with a taxpayer who has unfiled tax returns.

If you cannot afford to make any payment, you should contact the IRS and ask to be placed in “currently not collectible” status. The IRS will review your financial information to determine whether you can afford to make any monthly payments.

If you cannot, and have no assets you can sell to fund payments, the IRS will place you in “currently not collectible” status. When in that status, the IRS will not try to collect from you. The IRS will occasionally review your finances to determine whether you should remain in “currently not collectible” status.

If you owe less than $100,000 and can make monthly payments, you can apply for an installment agreement on the IRS payment agreement website or by filing Form 9465. An installment agreement requires monthly payments. The maximum length depends on the amount owed. The IRS may charge a payment plan setup fee.

If you are in “currently not collectible” status, or on an installment payment plan, substantial penalties and interest will continue to accrue. Thus, it is in your best interest to pay your tax debt as soon as possible.

Another option is to request an “Offer in Compromise,” in which you offer to pay less than you owe to resolve your debt. An Offer in Compromise may be appropriate if you will not ever be able to pay what you owe. You can offer to pay within five months, or to make monthly payments over two years. The IRS reviews financial information to evaluate a request for an Offer in Compromise. The IRS will accept an offer if it determines you are offering as much as it will be able to collect from you.

If you are uncomfortable dealing with the IRS, there are local CPAs and attorneys who can provide assistance. If you cannot afford to pay for assistance, you might qualify for representation through the Low Income Taxpayer Project.

The Low Income Taxpayer Project provides pro bono legal assistance to low-income taxpayers with federal liabilities less than $50,000. The telephone number for the Low Income Taxpayer Project is (603) 228-6028.

Know the Law is a bi-weekly column sponsored by McLane Middleton, Professional Association. We invite your questions of business law. Questions and ideas for future columns should be addressed to: McLane Middleton, 900 Elm Street, Manchester, NH 03101 or emailed to Know the Law provides general legal information, not legal advice. We recommend that you consult a lawyer for guidance specific to your particular situation.