The IRS offers several different strategies to help you avoid getting into a financial crunch, especially if you’re struggling to pay the tax debt. With the right help and options, you can avoid huge penalties and settle your debt without breaking the bank.
To settle your tax debt with the IRS without paying the full amount, you need to sign an ‘offer in compromise.’
Offer in Compromise
The ‘offer in comprise’ is a settlement between the taxpayer and the IRS if they can’t pay the full tax liability. The IRS approves your request for an offer in compromise after analyzing your total asset equity, monthly expenses, income, and ability to pay. The offer isn’t for everyone. You’ll need to work with a tax resolution service to present a strong case in front of the IRS. The IRS usually considers your request if it’s sure that you’ve explored and exhausted all other payment options.
Here’ what you need to ensure before filing your offer in compromise application:
- You must have filed all of your tax returns and must have made the required estimated payments. If you haven’t done so, the IRS will return your application, along with the application fee.
- You also need to deposit a fixed amount of initial payment. The IRS will deduct this amount from your balance due. This policy only applies to your current tax returns if there are no valid extensions on the file.
- You must not be in an open bankruptcy proceeding.
- If you’re self-employed and have other employees, you must also submit the required federal tax deposits.
Submitting the Offer
If you meet the required eligibility criteria, you need to submit the complete offer package that includes the required documentation (Form 433-A for individuals, 433-B for businesses, and 656(S) for your individual/business tax), $205 application fee, and initial payment.
The initial payment amount depends on the option that you choose:
- If you’re paying lump sum cash, the initial payment should be 20% of the offer amount.
- If you’re paying periodic payments, you’ll pay the initial payment and will follow up the rest in monthly installments.
- You don’t need to deposit the initial amount if you meet the low-income criteria.
If your offer is accepted and the terms are satisfied, the tax liens will be released. If any refunds are due within the same calendar year, they’ll be applicable to your tax debt. If it is rejected, you can appeal the rejection within 30 days. A tax settlement service like Empire Tax Solutions can help you out in this case. We also help our clients deal with wage garnishments and unfiled tax returns. Get in touch.