When you owe the Internal Revenue Service a sizeable amount of money in back taxes, you may be worried that you can’t afford to pay it all in one lump sum. And if that’s the case, you may also be worried about what happens if you don’t pay it off right away.
Thankfully, there are mechanisms in place to protect delinquent taxpayers while helping the IRS collect most or all of the money owed. As we’ve discussed in previous posts, IRS representatives may be amenable to setting up an installment agreement. This is just another way of saying regular payments made over time (monthly for five years, for instance). But another important tax collection solution that may be available is called an “offer in compromise,” and that’s what we’ll discuss in today’s post.
An offer in compromise is basically an attempt to settle your tax debt for less than the full amount that you owe. But this isn’t the same type of haggling that you might do at a car dealership. Rather, you must demonstrate financial hardship that makes you unable to pay your full debt. As we note on the offers in compromise page on our website, an experienced tax law attorney can help you present your financial circumstances to the IRS in a way that helps demonstrate the financial need for an OIC.
It is important to present a strong argument in favor of an OIC, because the IRS is free to reject any offer you make. In fact, the agency has historically denied the majority of offers in compromise. In 2010, for instance, fewer than one in four OICs were accepted.
The good news is that the IRS may be starting to show flexibility with this program. According to a news article from earlier this year, the acceptance rate for offers in compromise had risen to 42 percent by 2013.
An OIC is not right for every delinquent taxpayer, nor will all taxpayers be approved. But if you owe money to the IRS, you should fully understand your rights and options regarding repayment. And for that, it’s a good idea to have a knowledgeable tax law attorney on your side.