Settling Your IRS Tax Debt: Knowing the Basics of an Offer in Compromise

By: Richard Close Tax Planning 1 Follower


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           What can you do when you owe the IRS money and you have no way of paying them?  What can you do when they’re threatening to seize your property or garnish your wages?  What can you do when the financial security of your family is threatened?    

            Even though the situation seems hopeless, there is hope.  There are ways that you can settle your IRS debt for a lesser amount.  You may even be able to erase your debt entirely.  But how do you go about convincing the IRS that you shouldn’t or couldn’t pay the debt you owe them?  How do you convince them they should give you and your debt special treatment?  The IRS is loath to not collect your full debt and has created a complicated bureaucracy to make sure you have no choice but to pay the full debt.  But if your situation is dire and you’re afraid that this debt will ruin you and your family then you may be able to qualify for an IRS tax debt settlement. 

            If you are in over your head asking for help is your best bet.  Looking for assistance from tax professionals can be the miracle you’re asking for. Tax professionals can provide the legal support and knowledge of the IRS bureaucracy you need to present your case to the IRS. 

Before you hire the first name you see in the phone book take a deep breath and remember, “if it sounds too good to be true, it probably is.”  Getting professional tax assistance is important when negotiating with the IRS, but it is even more important to get professional assistance that will offer real solutions and not fantasies.  Before you hand over your money in the hopes to solve your debt make sure you’re not just getting into deeper debt.  You should always check with the Better Business Bureau and other consumer information groups to make sure you’re hiring qualified assistance. 

 There is a way to settle your debt for pennies on the dollar called an Offer in Compromise.  If you chose to go with a tax professional beware if they guarantee they can get you an Offer in Compromise.  The Offer in Compromise can be very seductive, but can leave you worse off than before you sought their help.

Before you assume this is the answer to your tax debt, you should be armed with the knowledge of reality vs. myth. 

  • You have to prove to the IRS that you will never be able to pay back the entire tax debt, or prove that paying off your debt would create “undue hardship”.  When you deal with the IRS you are guilty until proven innocent.
  • Only 2% of all offers in compromise are successful. 
  • If the Offer in Compromise is accepted you have to enter into a five year contract with the IRS.  You have to file all returns on time and pay any tax debt you may incur during the five year period.  Failure to live up to the terms of the contract will result in the entire debt being reinstated and you’ll have to owe the original amount plus any additional interest and penalties. 

An IRS Tax Debt Settlement is a possibility, and it can save you financial and emotional stress.  If you get a good tax professional they’ll give you options other than the Offer in Compromise and will help you to find other ways to settle your debt if you end up not qualifying.   

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