- 1). File your taxes, even if the IRS has filed a substitute return for you. Gather all the necessary W-2s and/or 1099s for the years you are filing. If you are unable to locate your tax documents, ask your old employer or contact the IRS so they can send you a listing of the tax documents they have on record for you. If, after filing your return, it is determined that you do not owe any taxes, the IRS will adjust your account accordingly.
- 2). File for an "Offer in Compromise" settlement for less than what you owe. Ensure the offer is fair because the IRS generally knows your income and your assets. You must prove to the IRS that it is unlikely that the amount you owe will ever be paid in its entirety, and convince the IRS that it will cost them more to pursue further collections than to settle. It is best to hire a tax professional in this case because when submitting an Offer in Compromise, you must send in 20 percent (which is nonrefundable) of the complete offer with your request.
- 3). Try to set up an installment agreement. It is relatively easy to get an installment agreement with the IRS if you owe less than $25,000. Based on how much you owe, the IRS will let you know the smallest monthly payment they expect you to make. You can request a reduced installment payment if you cannot afford the monthly payment the IRS is requesting. You must complete a financial statement, detailing your income and living expenses, plus the reduced amount you can pay. The IRS will consider your financial situation when making a decision.
- 4). Request "Uncollectible Status" if you cannot afford to pay anything at the moment because you are undergoing acute hardship and can only afford life's basic necessities. To qualify for Uncollectible Status, you must complete a financial statement, detailing your living expenses. If your account is placed in Uncollectible Status, the IRS will stop all collection proceedings for a specific time frame, typically until your financial situation has improved.
- 5). Pay the amount owed in full, if you can afford it. If you would like to make a lump-sum payment but need a little time to gather the money, let the IRS know. They may stop further collections to allow you reasonable time to come up with the money.
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