If you’re not financially able to pay your tax debt immediately, you can make monthly payments through an installment agreement . However, you will reduce or eliminate the amount of penalties and interest you pay and avoid the fee associated with setting up an installment agreement if you pay your tax bill in full. Before you apply:
- File all required tax returns;
- Consider other sources (loan or credit card) to pay your tax debt in full to save money;
- Determine the largest monthly payment you can make; and
- Know that your future refunds will be applied to your tax debt until it is paid in full.
For more information visit: http://www.irs.gov/Individuals/Payment-Plans,-Installment-Agreements.
Offer in Compromise
An offer in compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can’t pay your full tax liability, or doing so creates a financial hardship. The following set of facts and circumstances are considered:
- Ability to pay;
- Expenses; and
- Asset equity.
The IRS generally approves an offer in compromise when the amount offered represents the most they can expect to collect within a reasonable period of time. Explore all other payment options before submitting an offer in compromise. The Offer in Compromise program is not for everyone. If you hire a tax professional to help you file an offer, be sure to check his or her qualifications.
To be eligible you must be current with all filing and payment requirements. You are not eligible if you are in an open bankruptcy proceeding. You can use the IRS’s Offer in Compromise Pre-Qualifier tool to confirm your eligibility and prepare a preliminary proposal.
Cited from: http://www.irs.gov/Payments/Make-a-Payment