Most people don’t look forward to tax season, but for those with tax problems, it can be an extremely stressful time. The Internal Revenue Service is not a heartless institution, and for those who are unable to pay their tax debt or will face financial hardship in doing so, there are exceptions that can be made. In instances where settling your full tax debt is not an option, you might wonder if an offer in compromise a good solution to your tax problems. While you will have to explore all possible repayment options before submitting an offer in compromise, if other avenues have been exhausted, it might be a helpful option.
What Is an Offer in Compromise?
An offer in compromise is a written offer made by an individual who owes taxes to the IRS that suggests only partial repayment of the debt. Payment proposals can be made in a lump sum or in partial payments. If your tax-owing amount is impossible for you to pay back or if paying it back will cause severe financial hardship for yourself and your family, an offer in compromise could be the answer.
IRS Considerations in Offers in Compromise
Obviously, not just anyone’s offer in compromise will be accepted by the IRS. No one enjoys paying back taxes they owe, but for some, it is an impossibility. When assessing an offer in compromise, the IRS will consider the following applicant factors:
- Ability to pay
- Incoming income
- Asset equity
Offers in Compromise Approval
Offers in compromise are most often approved if the amount of payment suggested is the maximum amount the IRS can expect to collect within an acceptable time period. If the applicant can prove that their income is at the minimum for sustaining a basic standard of life, especially if they have dependents who would also suffer financially with a full repayment, an offer is more likely to be accepted.
Offers in Compromise Rejection
If an offer in compromise is rejected, the decision can be appealed if filed within thirty days of the rejection. If the applicant’s income is too high, they have large amounts of asset equity, or low expenses, the application is likely to be rejected.
Before an offer in compromise will even be considered by the IRS, the applicant must be up to date with all the filing and payment options. An applicant is automatically denied if they are involved in an open bankruptcy proceeding. Preparing a preliminary proposal using an offer in compromise pre-qualifier is a good indicator of eligibility.
If you are drowning in debt and are faced with paying back a large amount of taxes, you might be able to settle your taxes for an amount that is less than what you owe. An offer in compromise is an option available to people who have attempted other repayment options and are left with no other choices. Hiring an IRS lawyer to help you prepare your offer and decide what kind of payment option is right for you can make the process as stress-free as possible.