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Can you reduce your IRS taxes for less than what you owe them?
Answer: Of course you can.
The IRS will always allow you to live an average lifestyle, no matter how much you owe in back taxes. What they will not allow is for you to live a lavish lifestyle with six-figure back taxes still owing to the IRS.
The IRS’s position is that if you have extra money after normal expenses are paid, then they have a right to that money for the next 72 months or 6 years. If negotiated properly, that’s it!!! The IRS will accept partial payments. This is found in the Internal Revenue Manual (IRM) section 5.14.1.1 as follows:
5.14.1.1 (01-01-2016)
Overview
1. Installment Agreements are arrangements by which the Internal Revenue Service allows taxpayers to pay liabilities over time. If full payment cannot be achieved by the Collection Statute Expiration Date, and taxpayers have some ability to pay, Partial Payment Installment Agreements may be granted. During the course of agreements, penalties and interest continue to accrue. Generally, no levies may be served during installment agreements.
If an Installment Agreement calculation yields a greater amount of tax than is manageable, we then often consider the Offer in Compromise Program. This program was established for taxpayers who don’t fit into the installment program but can offer something to pay towards their back taxes. This is a one-time payment to the IRS and you are done. The IRS’s position is that if you have assets in excess of your debts and the excess is available then the IRS will require you to pay the excess to cover your debts.