If you don't qualify for the IRS Offer In Compromise program, a Payment Plan may be the way to resolve your problem. Setting up a payment plan with the IRS gives you a little more time to pay off your tax debts. Your monthly payment is not determined by what you owe but rather what you have the ability to pay. The payment is based on your income and expenses provided you have no assets you can sell to raise money.
Before applying for any payment agreement, you must file all required tax returns. Or this can be done all together. By submitting the agreement along with past due tax returns, usually 6 years of returns.
An Installment Agreement is generally available to people who can't pay their tax debt in full at one time. The program allows people to make smaller monthly payments until the entire debt is satisfied.
Installment agreements for $50,000 or less in tax debt, and the maximum repayment term of six years (72 months). Taxpayers who owe less than $50,000 and can meet the minimum payment need only complete Form 9465. The minimum payment is calculated by taking the grand total owed to the IRS for all tax years (including penalties and interest), and dividing that total balance due amount by 72.
If you cannot make the minimum payment then you will need to request a partial payment installment agreement which is easier and less time-consuming than requesting an offer in compromise. You complete the IRS Collection Information Statement (Form 433-F) (for individual taxpayers). Partial payment agreements can be as low as $0 per month, or what is called Currently Not Collectable (CNC).
Entering into a partial payment installment agreement requires that the taxpayer must make regular monthly payments to the IRS unless you receive a CNC, but he does not have to pay off the tax debt in full. After the terms of the installment agreement are fulfilled, any balance remaining is forgiven. Partial payment installment agreements and Offers in Compromise are ways to get out of paying all the tax debt.