Getting behind on your taxes is overwhelming and honestly, a little frightening. You don’t have the money to pay it all, but the IRS is the IRS. They hold a lot of power when it comes to collecting what is owed to them. Unlike other types of creditors, the IRS can garnish your wages, put tax liens against you, and freeze your bank accounts. It’s critical that if you can’t pay that you negotiate some type of deal with them. There are a couple different ways you can do this. You can agree to a payment plan, or you can see if you qualify for an offer in compromise. Let’s take a look at the latter.
What is an Offer in Compromise?
An offer in compromise for individual taxes is simple, and a lot of creditors offer this option for people who are struggling financially. Instead of paying the full amount you owe or setting up a payment arrangement, you pay less than you owe in a lump sum. Essentially, the IRS is reducing the amount you owe in exchange for getting a smaller amount of money up front because, on their end, it often evens out. They save on the collection costs they would incur if you went on a payment plan, and your taxes are considered paid in full. This can be helpful if you have some money set aside to pay your taxes, but just not quite all of it. Generally speaking, an offer in compromise will not be any less than 2/3 of your overall tax bill.
How Do I Qualify?
Not everyone can get an offer in compromise. You must demonstrate to the IRS that you are having financial difficulty and there’s no other way you can pay your full tax bill. The IRS will evaluate your situation and look at your ability to pay, your total income, what expenses you have (e.g., housing, vehicle, and utilities), and what assets you may have. The IRS won’t tell you to sell your only vehicle to pay your taxes, but if you have multiple vehicles or expensive antiques, they may require you to liquidate those assets before agreeing to an offer in compromise. You are automatically excluded from an offer in compromise if you file for bankruptcy.
Getting Help Preparing a Proposal
You can propose an offer in compromise to the IRS for their consideration. However, it must make sense and be financially viable for the IRS to take it seriously. It’s not always easy to calculate the best-case-scenario. You want to strike a balance between offering them an amount that they are likely to accept but costs you as little as possible. To do that, you need the help of a tax professional.
At Tribute Tax Defense, we have extensive experience helping people just like you get relief from the crushing burden of tax debt. To learn if you may qualify for an offer in compromise with the IRS and to get help preparing a proposal, contact us today. Call us at (713) 497-1841 or fill out our online form to request your free consultation.