When the Internal Revenue Service sends you a bill outlining the back taxes you owe, plus interest and penalties, it might seem as if you have no choice but to find a way to pay in full. While it might seem that way, there are circumstances in which paying in full is not your only option.
There is no doubt that when the IRS makes demands, it is an intimidating experience. The agency is renowned for having a reputation as a cold and impersonal bureaucracy focused solely on the bottom line. While there is little to be done about its institutional personality, there are effective ways of dealing with the agency, even when you owe taxes and cannot pay in full.
In some situations, you can make monthly installments on the amount owed until the debt is fully paid off. In other circumstances, you can ask the IRS to delay its collection efforts because your tax debt is not currently collectible. But what if those options don’t work for you?
You can make the IRS an offer. Yes, it’s true. In certain situations, taxpayers can make what is known as an offer in compromise (OIC). If accepted, the OIC resolves your tax debt for a reduced amount.
(Note: You are not eligible to file an OIC if you are currently in bankruptcy.)
Here’s an encouraging statement from the IRS on offers in compromise: “We generally approve an offer in compromise when the amount offered represents the most we can expect to collect within a reasonable period of time.” When mulling an OIC, the agency considers four factors when determining whether or not you are truly facing financial hardship: your ability to pay, your income and your expenses, as well as your asset equity.
An OIC can be filed on behalf of an individual or a business. If the offer is accepted, you will be expected to pay the agreed upon amount in either a lump sum or with periodic payments.
An tax attorney experienced in IRS collections and OICs can help you more fully understand your options.