Many people feel overwhelmed when dealing with IRS tax debt and don’t know where to turn. The IRS Tax Debt Compromise Program can be an excellent option for some, but it’s essential to understand what it is and how it works before you decide if it’s right for you. Here’s a brief breakdown of the compromise program and four factors to consider when exploring the program.
What Is the IRS Tax Debt Compromise Program?
The IRS Offer in Compromise program allows taxpayers to resolve their outstanding federal tax debt. Per the Internal Revenue Code (IRC), individuals must meet certain qualifications to submit an OIC proposal. These qualifications include the following:
- Inability to pay off the entire tax liability while fulfilling basic needs such as food, clothing, shelter, medical care, childcare, and other necessities. The IRS will evaluate the taxpayer’s present and future income to determine the feasibility of the settlement offer. The IRS will also review the current year’s estimated tax payments to assess the taxpayer’s ability to make payments for the current period.
- Inability to sell the property to raise funds for a lump sum payment towards the IRS tax liability. Additionally, the taxpayer must not have adequate equity in assets, beyond the IRS lien on any other real estate, which can be surrendered for a lump sum payment.
Here are four factors to consider when exploring the program:
1. Amount of Debt You Owe
It’s important to consider the amount of debt you owe when considering this program. The compromise program may be a good option if you owe a lot of money. On the other hand, if you owe a small amount of money, the program may not be the best choice.
The compromise program can be a great way to get reduced taxes due, but weighing your options before deciding is essential. If you owe a large amount, the program may help you reduce the taxes due and create a more manageable payment plan. However, if you owe a small amount, you may be able to pay the taxes due in full without taking advantage of the program.
2. Type of Debt
Some types of debt may be eligible for compromise, while others may not. It is essential to understand the difference between the types of debt the IRS will allow for settlement and those that do not.
For instance, if you owe the IRS a large amount of back taxes, you would not be eligible for the compromise program since the IRS does not accept tax debt for compromise. However, suppose you owe the IRS for other types of debt, such as student loans, credit card debt, and other unsecured debts. In that case, you may use the program to negotiate a lower total debt or payment plan.
3. Ability to Make Payment
When considering this program, it’s important to consider your ability to make payments. If you can fully pay what is owed, this is likely your best option. On the other hand, if you cannot make the full payment, you may want to consider a compromise.
This can include reducing the amount you owe, setting up a payment plan that is more manageable, or even reducing the interest and penalties. No matter which option you choose, it’s essential to understand the terms of the agreement and ensure that you can make the payments on time and in full.
The IRS has several withholding and collection tools they can use if payments are not made, so it’s essential to make sure you can make the payments when they are due.
4. Length of Time You Have
The IRS’s compromise program is a great way to help taxpayers who are struggling to pay off their IRS debt. This program can provide various options for those who cannot promptly pay the total amount of their debt. Before entering into a compromise with the IRS, it is crucial to consider the length of time you have to pay the debt.
The IRS may pursue more punitive actions if the debt is too large and cannot be paid off within the allotted time frame. It is also essential to consider your financial situation when negotiating a compromise with the IRS. If you cannot make the payments as agreed, the IRS may pursue other avenues to collect the debt.
If you are interested in determining whether the IRS offer program is a suitable option for your particular tax situation, we invite you to contact us at Defense Tax Partners at any time. Our team is available to assist you with an evaluation and provide guidance regarding the IRS offer program.