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

Less than $100/month discretionary income

All collection action stopped, but the IRS will take future tax refunds to apply toward your debt.

Even with cash in banks, you may still qualify if your monthly expenses are high enough to leave minimal discretionary income.

Who Qualifies?

• Your monthly income minus allowable expenses leaves less than $100
• You're experiencing financial hardship
• You cannot afford to pay the IRS and meet basic living expenses

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

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:

(Monthly Discretionary Income × 12 or 24) + Available Assets

× 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:

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.

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.

IRS Tax Relief Programs Explained

Priority 1: Currently Not Collectible (CNC)

Who Qualifies?

What Happens During CNC Status?

Priority 2: Offer in Compromise (OIC)

Who Qualifies?

Required Information:

OIC Calculation Formula:

Priority 3: Installment Agreement (IA)

Types of Installment Agreements:

Payment Calculation Examples:

How the IRS Prioritizes Your Case

Find Out Which Programs You Qualify For

Important Considerations: