May 22, 2013
Dealing with the IRS about tax debt: know your options
If you owe money to the IRS, you know you are up against a formidable adversary. IRS tax liens and other collection mechanisms can target your property and bank accounts, leaving you with fewer and fewer options.
That is why, for taxpayers in Texas and across the country who are facing tax debt, it’s important to know what the options are. Two of the most significant are an offer in compromise (OIC) and an installment agreement.
Both an IOC and an installment agreement are ways of resolving tax debt. But they differ in important respects.
Under an installment agreement, the taxpayer pays the full amount owed. But the taxpayer is allowed to do so over a longer period of time.
An offer in compromise, by contrast, involves a negotiation between the taxpayer (or the taxpayer’s attorney) and the IRS. If the IRS accepts the taxpayer’s offer, the taxpayer will pay a smaller amount of taxes than originally owed.
For example, a taxpayer could negotiate an OIC in which he or she pays a certain amount of the original debt – say 60 percent – in a lump sum.
Keep in mind that an offer in compromise involves participating in a formal IRS program. Not surprisingly, then, there is an official form to fill out: Form 656.
The IRS will consider several different factors in deciding whether to accept an OIC. Understandably, a taxpayer’s ability to pay a tax debt is a key consideration. Evaluating that factor includes looking at not only at income and expenses, but also a taxpayer’s other assets.
Source: “Offer in Compromise,” IRS.gov