When a Client Has Tax Debt—And You Have No Interest In Resolving It

For most tax professionals, you didn’t go to school, build your business, or get your credentials so you could wrangle with the IRS.

So when a client tells you, “I owe money to the IRS, what should I do? Your gut reaction is probably something like:

“Ah, jeez, no, thank you." Which then moves straight into, "Who can handle this for me?”

That instinct is exactly right.

When a client opens up about their tax debt, you know it’s going to affect the work you’re doing for them. They need it resolved.

And while you’re not about to get on the phone with the IRS, you still want to steer them in the right direction.

This article will help you do that.

Why This Matters

Tax debt tends to mess everything up. It delays mortgage approvals, affects bankruptcies, complicates divorces, and throws off financial plans.

Knowing that help exists—and that there are options—can turn you into the person who your client relies on for help (or at least relies on you knowing who can help).

Four Resolution Paths You Should Know

1. Installment Agreement—The Monthly Payment Plan

This is the most common resolution—but there's more to it than you may think.

Circumstances matter, including how much is owed, which collection notices have gone out, the statute of limitations, the collection timeline, and whether financials need to be provided.

If your client wants the most favorable results, you can't just call up and ask for a payment plan.

2. Partial Pay Installment Agreement—You Don't Pay the Balance In Full

This one looks like a regular payment plan on the surface, but it works very differently, and it's much more difficult to negotiate.

Here, the monthly payment isn’t calculated to pay off the full debt—it’s based on what the client can actually afford. And because the IRS only has 10 years to collect from the date of assessment, any balance remaining at the end of that window will be written off.

It's gone. Even though the debt wasn't paid off in full.

It’s ideal for clients who can pay something but won’t be able to pay the full balance before the clock runs out.

Getting one approved requires detailed documentation and a good understanding of how the IRS calculates ability to pay. But if you can negotiate one, it can significantly reduce the total debt paid.

3. Offer in Compromise—Settle the Debt for Less Than The Full Amount

This is the “settle for less” option that clients often ask about after seeing late-night commercials.

And yes—it’s real. But it’s not a magic wand. And most people don't qualify.

The IRS accepts an Offer in Compromise only when it believes that the amount being offered is the most it can reasonably collect based on the taxpayer’s income, expenses, and equity in assets, along with what's left on the statute of limitations.

The documentation needs to be airtight. The numbers have to be right. And the client has to stay compliant going forward (otherwise, the full debt reappears). But when it’s the right fit, it can lead to a complete resolution for far less than the full balance owed.

4. Currently Not Collectible—A Stop On Collections

For clients who are truly in financial hardship—no disposable income, no significant assets, and no ability to pay anything—the IRS has a status called “Currently Not Collectible” (CNC).

When someone is placed in CNC status, the IRS stops all collection activity. No levies, no garnishments. The debt remains, and interest continues to accrue, but the IRS backs off.

Sometimes it's not a permanent solution, but it provides breathing room. Other times it is, especially if the client’s financial circumstances don’t change. When it is permanent, it's the equivalent of a $0 Partial Pay Installment Agreement.

The savings are significant.

TL;DR – Four Options to Help Your Clients Move Forward

⏩ Installment Agreement – A monthly payment plan and the most common resolution. But there's much more to it than you think.

⏩ Partial Pay Installment Agreement – Your client will make a payment each month but never pay off the total debt by the statute of limitations.

⏩ Offer in Compromise – For clients who qualify to settle the full amount owed for less than they owe. Not everybody qualifies.

⏩ Currently Not Collectible – For clients who can’t pay anything and want to shield themselves from enforced collections

You Don’t Need to Handle It—You Just Need to Know Where to Send Them

If a client brings up tax debt, you don’t need to take it on. And I'm sure you'd rather not.

But knowing that there are real solutions available—and knowing someone who works with these cases every day—puts you in a position to help your client get a favorable resolution.

Let's Talk...

➤ What do you do when a client comes to you with tax debt?