Is an Offer in Compromise the Best Way to Settle Your Tax Debt?
If your tax debt is higher than what you can realistically pay, you may qualify for an offer in compromise. If certain conditions are met, the IRS will allow you to settle your tax debt for less the amount you owe.
However, the IRS is not quick to grant this option to taxpayers. To determine if you qualify for an offer in compromise, the IRS will need proof that you are truly unable to pay back the full amount.
When considering your request, the IRS will investigate the following questions and base their decision on what they find.
- Can you afford to pay the tax debt?
- What is your annual income?
- What are your major expenses (mortgage, car payments, student loans, etc.)?
- Do you have any significant assets?
An offer in compromise is designed for those who cannot afford their tax debt. It is very similar to a debt settlement program for individuals with overwhelming credit card debt. The IRS realizes that sometimes it is better to get some of the outstanding debt owed to them, rather than receiving no payment at all.
Submitting an Application for an Offer in Compromise
Filing this request will usually require you to pay a $150 fee.
The request and approval process is not short. It often takes 12–24 months of communication with the IRS before a decision is reached.
You will need to complete appropriate paperwork and supply significant background documentation to provide the IRS with what they need to determine your eligibility.
In exchange for a reduction in payment you must agree to pay the amount agreed upon, file and pay your taxes on time for the following 5 years and forfeit any tax refunds as credits toward your debt.
The Likelihood of Approval
As you might imagine, the IRS does not approve a large number of these requests. Some estimates state that the IRS only approves 15–20% of the applications they receive each year.
This means it’s extremely important to submit a strong application that leaves no room for doubt. It can often be very helpful to get support from a trusted tax firm with extensive experience submitting offer in compromises to the IRS.
A tax firm can review all of your information and give you a sense of whether, given your unique situation, you have a decent chance of qualifying or not. A tax firm can also strengthen your application and give you a better chance of being approved.
Success Tax Relief Can Help
We have more than 30 years of experience and thousands of customers all over the country who can attest for our exemplary work and customer service.
If you know you’re unable to pay your tax debt and would like us to work with the IRS on your behalf, contact us today for a free consultation.