Offer in Compromise: One Way to Solve Your Tax Debt

For some people, paying taxes in this kind of economic climate may be difficult. Some taxpayers are simply not able to pay off their debt in full because doing so would present a financial hardship. If you fall into this category and you need to settle tax debt, there are few options available to you.

The primary option is an installment agreement; however, if this is not acceptable, an offer in compromise (OIC) may be your best alternative. An offer in compromise is an agreement between you and the IRS that resolves tax debt by settling or compromising for less than full payment.

An offer in compromise is basically your ability to pay versus the IRS’ ability to collect. Ask yourself this question: If the IRS were to take everything from you (your wages, your assets, etc.) would that amount satisfy the debt? If the answer is no, you may qualify for an offer in compromise. However, keep in mind that the IRS has a very specific formula for determining your ability to pay.

An offer in compromise should be your last resort, meaning that you have investigated the requirements of the other plans available to you and you have determined that you don’t qualify or you cannot afford the payments.

Initiating the process for an offer in compromise, filing accompanying forms, and paying the application fee (roughly $150) rests entirely on your shoulders. Be forewarned that acceptance into the program is stringent; the IRS resolves very few cases this way. According to Tax Solutions, the IRS rejects approximately 83 percent of offer in compromise cases. For this reason, you should only apply for this program if you are sure it is one of your final options. Otherwise you could end up wasting time and money.

Keep in mind that the entire process of an OIC may take up to two years just to get accepted. Speak with a tax professional and make sure that you can qualify; otherwise the application may be a waste of time and money. If you do your research and apply, however, the hard work will pay off if you are accepted into the program.

If you would like additional information and assistance with your tax debt, you can get a free consultation to resolve delinquent taxes today!