Offers in Compromise:
If you have accumulated a massive debt in back taxes, there may be a way out of the situation for you in what is called “Offers in Compromise”. Every year that you do not pay the IRS the amount of money specified on your tax return, penalties and interest accrue on the unpaid balance. If this situation continues for many years you may find yourself facing an insurmountable debt that is way beyond your ability to pay. Very often the penalties and interest that have been added amount to more than the tax debt itself – often as much as three or four times the original amount. Since the IRS does not have a mandate to write off such debt, the amounts keep adding up year after year.
During the 1990s, the government realized that if it came up with a plan whereby people could repay part of the debt, they could write off some of the additional money that was added on. At least they would be getting back part of the money they were owed. This was the beginning of the Offer in Compromise program, also known as the OIC. The criteria for this program focuses on the individuals “ability to pay”. If the individual’s ability to pay the tax debt over a five year period is less than what he/she owes, then some of the tax debt will be forgiven. This puts the amount owing down to a reasonable level that the individual can start paying.
In order to qualify for this program, all your expenses in a month are taken into consideration, which include the money that you spend on:
- Food and clothing
- Housing
- Transportation
- Medical expenses
- Student loan payments
- Alimony and child support
If the total of these expenses is equal to or greater than the monthly income after taxes, then you would probably qualify for the program.
However, the criteria are very strict and about 83% of the people who apply for the program are turned down. Most of the time, the applicants do not have the correct documentation or they are actually bringing in more than enough money to pay the tax bill.
In order to make sure you do not fall into this situation and have to mortgage or sell your home to pay your back taxes, you need to make sure that you pay your quarterly tax bill on time, even if you have to make monthly installments so that it is paid in full before the next one is due. If you make out your taxes yearly and have to pay the government money, you should take this into consideration throughout the year and try to put enough money away each month so that you can pay it in full with your tax return. If this is not possible, here are some suggestions that might be of assistance to you:
- Make arrangements to pay the outstanding bill in monthly instalments. You can spread this out over a five-year period.
- If you do have a low income and no assets that the government could seize and sell, make an Offer of Compromise.
- You can also get places on “Non-Collectible Status”. This is possible if you lose your job and do not have any income from which you can pay.
- The most drastic suggestion is to file for bankruptcy, but this should only be considered in extreme cases.
It is advisable that you seek the help of a tax attorney to in whatever method you decide to use. There are tax negotiators who will help you with the process and will negotiate with the IRS on your behalf.
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