You get a letter from the IRS. It says you owe the government a big chunk of money. Your heart sinks, you go into a cold sweat, you don’t have that kind of money.
Now what do you do?
One option may be an Offer in Compromise.
An offer in compromise is an agreement between a taxpayer and the IRS that settles a tax debt for less than the full amount owed. An offer in compromise is an option when a taxpayer can’t pay their full tax liability. It is also an option when paying the entire tax bill would cause the taxpayer a financial hardship. The ultimate goal is a compromise that suits the best interest of both the taxpayer and the agency.
When reviewing applications, the IRS considers the taxpayer’s unique set of facts and any special circumstances affecting the taxpayer’s ability to pay as well as the taxpayer’s:
The IRS just issued an updated publication with information for individual taxpayers and business owners unable to pay their taxes. This electronic pub, Offer in Compromise Booklet, helps people understand how an offer in compromise works.
The booklet covers everything a taxpayer will need to know about submitting an offer in compromise, including:
The free booklet also includes the forms that taxpayers will complete as part of the offer in compromise process. You can also see if you qualify for for an offer in compromise. The IRS provides a short pre-qualification survey you can take to see if it works for you and your situation.
If it is determined you are not eligible for an offer in compromise, you could still be eligible for an installment plan to pay your tax debt. In this case, the IRS will look at your income, assets, and expenses to come up with a monthly payment plan until you are current on your tax liability. This Online Payment Agreement tool will help you get started.
Regardless your situation, the most important thing is to address the tax debt and not ignore it. Owing money to the IRS is never a fun thing, but it can get incrementally worse if it is ignored and even result in criminal prosecution. If you’re not sure what to do contact a financial expert, CPA, or tax attorney. It’s worth the small cost to get expert advice and guidance.