People all over the world are struggling with debt in the current global financial climate. For most people these debts will be to do with credit cards and loans, or having over-extended on a mortgage. For a small number of people however, it will be large tax debts owing that are causing them trouble. And often these debts can be just as stressful and just as crippling, with the belief that there is nothing you can do when you face going under, simply because you are dealing with the IRS. To a certain extent this is true – the IRS expects its taxes to be paid. But it is worth bearing in mind that in some cases it is possible for a certain amount of leeway to be given, or even an exception to be made, and that tax debt can be reduced through something called an Offer in Compromise.
Such a deal is rare, but comes about when the IRS either thinks there will be little or no chance of you paying the full tax debt owed, or it is in dispute with you about your total tax liability and whether you owe what they think you owe. In certain of these cases the IRS is permitted, at its own discretion, to look at, consider and then accept your submission of what is known as an Offer in Compromise. The Offer in Compromise is essentially an offer that you will make to the IRS that suggests a figure you think you can pay that is less than the figure they are asking for. Unbelievable as it may sound, they will often be willing to accept such an offer because they will look on it in such a way that they are at least going to recoup a portion of the debt you owe. Without that Offer in Compromise you may go bankrupt or not be able to pay them any of the outstanding debts.
There are of course some caveats to the above notes. If you do agree to an Offer in Compromise then you must absolutely ensure that you can and do stick to all the conditions and terms that are agreed upon when going through the submission. These are the conditions that will be outlined in ‘Form 656, Offer in Compromise’ as well as in ‘Form 433A, Collection Information Statement.’ Additionally you might need to use the ‘Form 433A Worksheet’ when calculating the figure that you wish to offer the IRS for your Offer in Compromise. Within all these forms you will be agreeing to all sorts of requirements, some of which might be:
That you are going to pay the exact amount of money agreed upon in the Offer in Compromise.
That for the following 5 years after the Offer in Compromise you will be both filing your tax returns and paying your tax returns on time.
That any credits or refunds that would have been allocated to your tax debts that came before the agreed Offer in Compromise are now to be retained by the IRS.
That the IRS are within their rights to revoke your Offer in Compromise at any time and ask you to pay the full amount owed should you not stick to the agreed rules of the Offer in Compromise.
Esther, the author, is a financial journalist and a writer. She enjoys covering everything from personal finance to small business tax advice and from mortgages to investments. She also writes a blog for a UK payday loans site.