What are the legal options for tax debts?
If at all possible, the best option is always to pay the tax bill in full. The IRS charges penalties and interest on any unpaid taxes until they are fully paid, even if a payment plan has been negotiated or an offer in compromise accepted. The worst choice would be to ignore the tax bill and hope for tax forgiveness down the road. Inevitably, this leads to tax liens against personal property and perhaps even a tax levy, in which the IRS garnishes an individual’s wages.
A payment arrangement with the IRS could be advantageous in avoiding the worst consequences of a tax debt. However, if the situation is more severe, some taxpayers qualify for a partial forgiveness of the debt, in the form of an offer in compromise.
Who qualifies for an offer in compromise?
Not everyone who requests an offer in compromise will get one. In fact, the chances of succeeding are roughly 40%. The criteria to qualify for an offer in compromise are strict, and will only be possible in three tax situations:
- Doubt as to liability, or a genuine dispute over the amount owed in taxes, or whether one owes the IRS anything at all.
- Doubt as to collectability, which occurs when one’s income and assets are less than the total due in taxes. When the IRS is doubtful about the petitioner’s ability to pay, they may make an offer in compromise.
- Effective tax administration, which can occur when paying the full amount would create a financial hardship, or when circumstances exist that would make it inequitable for the IRS to collect the full amount owed.
Other requirements that must be met in order to qualify include:
- All tax returns have been filed that one is legally required to file
- At least one bill for one tax debt must have been received and included in the request
- All required estimated tax payments must have been made for the current tax year
- The individual or their business are not currently involved in an open bankruptcy filing
- No audits or innocent-spouse claims are open with the IRS
When requesting an offer in compromise from the IRS, it is important to follow all the rules. If the offer is accepted, the petitioner must fulfill all the terms of the offer, so it is important to have an attorney read the fine print in this agreement and spend time reviewing the details.
When we believe a client’s case could qualify for an offer in compromise, we fully explain the process and we prepare the offer using IRS Form 656. An offer in compromise begins with the taxpayer making the IRS an offer, which must be greater than or equal to the value of their assets. This includes bank accounts, real property, and bank accounts, as well as future anticipated income, minus basic living expenses. Basically, for the IRS to accept an offer in compromise, they must first weigh the taxpayer’s ability to pay with their ability to collect.
A tax attorney can help determine whether an individual will qualify for the program and recommend the right amount to propose paying the IRS with their offer in compromise. If the IRS rejects an offer, a taxpayer has thirty days to file an appeal. We recommend consulting with one of our seasoned tax attorneys at Dilendorf Law Firm to learn more about our tax debt solutions.
IRS Offers in Compromise
Dilendorf Law Firm
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The tax attorneys at Dilendorf Law Firm often help our clients settle tax debts using an option known as an IRS Offer in Compromise, a solution that far less damaging to a credit score than standard creditor forgiveness options.