If you owe the IRS a debt that is 2, 3, or 4 years old, your options to settle the debt or set up a payment plan are different from someone with new tax debt. Learn how to settle your tax debt today.

If you’ve owed the IRS for 2, 3, or 4 years, you’re getting hit with interest and fees that are making your tax debt a bigger problem every day.

I know what you’re thinking: “Owing the IRS is so overwhelming.” But there’s a way to kick your tax debt to the curb. Even if you might not see it right now.

Are you ready? Here’s how to settle with the IRS based on how old your tax debt is.

Do This If Your Tax Debt is 2 Years Old

If your tax debt is two years old, the first question you should ask yourself is: “Are my tax returns filed and up to date?” Here’s why… You can’t settle a tax debt if you’re behind on filing your returns.

But don’t worry. Being a year or two behind on filing tax returns is usually an easy fix. As for your outstanding debt, one solution is to ask for an installment plan. According to Canopy Tax, “under an installment agreement, the taxpayer agrees to pay the entire amount of their debt in monthly installments over a period of up to six years.”

Before you do, make sure it’s right for your situation. Because installment plans might do more harm than good.

👉 Tip: Once you start an installment plan, you will have a harder time qualifying for a debt reduction request later.  We recommend you speak to an expert to see if you qualify for tax relief first.

Asking the IRS to forgive some of your tax debt might be a better option. Wouldn’t that be a relief? It’s called an offer in compromise (OIC). There’s just one problem: OIC isn’t an option for everyone.

For instance, if you ask to settle your debt but drive a new Mercedes and own a house that’s worth a couple million, you probably won’t qualify for OIC. Plus, settling your tax debt isn’t instant. It will take some time, but it can be worth the wait.

Want to know if settling your 2-year-old tax debt with an offer in compromise is right for you? The IRS has a free online questionnaire to see if you qualify.

How to Settle IRS Tax Debt that’s 3 Years Old

Settling a tax debt that’s three years old might take more work. Or it might not. It really depends on what the IRS has done so far to collect their money.

If they’ve garnished your wages, you might need some help to get the situation straightened around. You can still set up an installment plan or settle your debt for less than you owe. Getting the IRS to forgive part (or all!) of what you owe could be a real possibility. Through an offer in compromise, the IRS can lower your tax bill.

But there’s a catch: In 2018 alone, the IRS rejected more offers than it accepted.

Offer in Compromise Mistakes:

Tax relief expert (and former IRS revenue officer) Jeffrey McNeal says when he processed offers, he saw tons of mistakes made on the forms, even when prepared by CPAs and enrolled agents!  So be sure to ask an expert for help. Canopy Tax has the inside scoop to get the IRS to accept your offer.

They say that one of these three situations must apply to you:

  • You can show you can’t pay the full tax debt owed
  • You can prove the tax is not actually owed
  • You’re in a unique situation where an offer is in the best interest of both your client and the IRS

The meaning of that last one is hazy. And you know what that means? There’s some wiggle room to get your tax debt settled. Breaking down what you owe into bite-sized monthly payments is another option. If your tax debt isn’t huge – if you owe $10,000 or less – the IRS almost always approves an installment agreement. All you have to do is ask to set up a payment plan.

Settling a 4-Year-Old IRS Tax Debt

There’s nothing fun about owing the IRS money. If you’ve had an outstanding tax debt for four years, you might deal with wage garnishments. And your tax returns might not be up to date. Unfortunately, that can make settling your IRS bill more complicated.

Gathering old W2s and financial information to file your past returns is a pain.

What if you don’t have access to all your old info?

That’s when a professional tax debt relief company can help. The IRS has files that go back years, and the tax relief company can look up your old W2s, 1099s, and 1098s.

The main problem with that is…

It takes more time and effort to file old tax returns, so you’ll end up paying more to get up to date. But here’s the thing: “Once you’re up to date, you have more options to take care of your outstanding tax bill.”

What kind of options?

You can ask the IRS to forgive some of your tax debt with an offer in compromise. But Canopy Tax warns that “the IRS will generally not accept offers from a taxpayer who can pay their debt in full or through an installment agreement.” In that case, you can set up a payment plan to pay off the entire balance over time.

Ready to Settle Your Tax Debt?

No matter how long you’ve been carrying around your tax debt, one thing is for sure: There is a way out. But there’s an exception. You’ve got to do everything right and according to IRS rules to settle your tax debt.

That’s why some people call in a tax debt relief company. With tax relief, a team of tax experts will handle the IRS so you don’t have to. Otherwise, the IRS has guides to help you settle your tax debt.  If you want to settle your debt, follow this checklist for an offer in compromise. If making small monthly payments is better for your situation, the IRS has a handy guide for installment plans.

Inline Feedbacks
View all comments