The Internal Revenue Service is sometimes known as a cutthroat agency because it will use all the resources it has available to collect what's due to it. Many people who have to deal with this know that it is a stressful experience, especially when you can't just write a check to cover it.
First, even if you can’t pay your balance in full, it is always best to timely file your income tax return with as much as you can afford to pay. The late filing penalty is 5% PER MONTH! (maximum of 25%). A late payment penalty is also assessed at 1/2 of 1% per month and in some limited cases you may be able to get that penalty waived.
Some taxpayers agree that they do owe the IRS money and they want to pay what they can pay so they don't have to continually worry about having to deal with the agency. If you're in that position and simply don't have the ability to pay in full, an offer in compromise might be the answer to your issue.
What is an offer in compromise?
An offer in compromise is a reduction in the amount you owe the IRS. It is only available in specific cases and must meet certain requirements. Ensuring that your application meets the requirements can be a complicated endeavor.
What amount can you offer?
You have to offer to make a payment, so you can't offer $0. The offer has to meet specific requirements. Typically, the IRS will only accept an offer it is equal to what is considered a fair offer. This usually means that it is equal to your available anticipated future income plus the value equity in of the assets you own (house, car, investments, etc).
A request can take into account the financial difficulties that the repayment will place on you. The agency will look into your financial situation to determine what's possible for you. It wants to know what the collection ability is, so you can't present a low-ball offer if you're able to pay considerably more.
How are offers in compromise paid?
There are two options for paying off the offer in compromise. One is that you make a periodic payment offer, which lasts six to 24 months. The second is the lump sum payment, which can last up to five payments. You must include the first payment for your proposed payment plan with the application and the application fee.
You'll continue to make payments while your offer in compromise is considered. Failing to do so can mean it is declined. Some individuals might qualify for a low-income exception, which means they wouldn't need to include the first payment and would be exempt from making payments during the consideration period. Unlike credit card or bank debt, the IRS doesn’t look at a percentage of what you owe, but mostly at what it determines you can afford to pay.
As experienced tax attorneys we are able to help you understand if you may qualify for this program or other alternatives you may have and can then help navigate you through the process. Call today to discuss how we can help you with your IRS debt issue.