IRS Tax Relief Programs Explained
Understanding how the IRS prioritizes and evaluates each tax relief option
Priority 1: Currently Not Collectible (CNC)
The IRS reviews this option FIRST
Disposable Income ≤ $0
Your monthly income after allowable expenses leaves no money to pay the IRS. All collection action is stopped, but the IRS will take future tax refunds to apply toward your debt.
Even with cash in banks, you may qualify if your monthly expenses are high enough to leave zero or negative discretionary income.
Who Qualifies?
- • Your monthly income minus allowable expenses equals zero or less
- • You're experiencing financial hardship
- • You cannot afford to pay the IRS and meet basic living expenses
- • You must be current on filing requirements
What Happens During CNC Status?
- • IRS stops all collection activities (levies, liens, garnishments)
- • Interest and penalties continue to accrue
- • IRS automatically takes your future tax refunds
- • Status reviewed every 1-2 years
- • Debt may expire under statute of limitations while in CNC
Priority 2: Offer in Compromise (OIC)
The IRS reviews this if CNC doesn't qualify
Settle your tax debt for less than you owe
Based on your reasonable collection potential: income, expenses, and available assets (banks, investments, property equity).
Who Qualifies?
- • Your total available assets + future income potential is less than the total debt
- • You don't qualify for CNC (have discretionary income over $100/month)
- • All tax returns are filed and current
- • Not in active bankruptcy proceedings
Required Information:
- • Form 433-A (Collection Information Statement)
- • Bank account balances from last 3 months
- • Investment account values
- • Property equity calculations (home, cars, other real estate)
- • Monthly income and expense documentation
- • $205 application fee (waived for low-income taxpayers)
OIC Calculation Formula:
The IRS calculates your minimum offer amount as:
× 12 months for lump sum offers paid within 5 months
× 24 months for periodic payment offers paid within 24 months
Priority 3: Installment Agreement (IA)
The IRS reviews this last as the default option
Pay your tax debt over time in monthly installments
Payment amount based on either total debt ÷ 72 months OR your monthly discretionary income, whichever is higher.
If your debt is under $50K, the IRS may require you to liquidate available cash from banks or retirement accounts first.
Types of Installment Agreements:
Guaranteed Installment Agreement
• Debt under $10,000 - automatically approved
• Pay within 3 years
Streamlined Installment Agreement
• Debt between $10,000 - $50,000
• Pay within 72 months (6 years)
• No financial statement required
Partial Payment Installment Agreement (PPIA)
• For any debt amount
• Monthly payment based on discretionary income
• May not pay off full debt before statute expires
• Requires Form 433-A
Payment Calculation Examples:
Standard Calculation:
$50,000 debt ÷ 72 months = $694/month
Discretionary Income Calculation:
$5,000 income - $4,500 expenses = $500/month
The IRS will use whichever calculation results in a higher monthly payment, unless you qualify for a Partial Payment agreement.
Important Considerations:
- • Penalties and interest continue during payment period
- • Must file all future tax returns on time
- • Cannot incur new tax debt
- • Setup fee: $31-$225 (varies by agreement type and income)
- • Statute of limitations on collection is extended
How the IRS Prioritizes Your Case
The IRS follows a specific priority order when evaluating which relief program to offer taxpayers. Understanding this hierarchy is crucial for setting realistic expectations.
- 1.CNC First: If you truly cannot pay anything without hardship, the IRS will place you in Currently Not Collectible status before considering other options.
- 2.OIC Second: If you don't qualify for CNC but your total assets and future income potential is less than the debt, the IRS will consider an Offer in Compromise.
- 3.IA Last: If neither CNC nor OIC applies, you'll be offered an Installment Agreement as the default collection method.
This priority system ensures that taxpayers experiencing the most severe financial hardship receive the most favorable treatment, while those with ability to pay work through payment arrangements.
Find Out Which Programs You Qualify For
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