Few things have the potential to be more stressful than falling behind on your tax payments. After all, the Internal Revenue Service has many collection tools at its disposal. These include levying your bank accounts and seizing your home. In some cases, the IRS even can seek criminal charges against Americans who do not pay their taxes.
You should not panic, though. If you have tax debt that is difficult or even downright impossible to pay, you might be eligible for an offer in compromise. According to the IRS, an offer in compromise settles your outstanding tax debt for less than you owe.
Why does the IRS use offers in compromise?
The primary role of the IRS is to collect taxes. While the agency certainly does its best, it also recognizes the financial realities of taxpayers, If you are not likely to be able to pay your outstanding tax debt in a reasonable timeframe, the IRS might entertain an offer in compromise.
What factors does the IRS consider?
As you might suspect, the IRS does not make offers in compromise to all taxpayers who are behind on their tax payments. To know whether you may be eligible for one, the IRS considers your income, assets and expenses. Your ability to repay your tax debt also factors into the agency’s decision-making, of course.
Who is eligible for an offer in compromise?
If you wonder whether you might qualify for an offer in compromise, you can use the IRS’s pre-qualifier tool. To be eligible, though, you generally must have filed all of your tax returns and made your estimated payments. You also likely cannot have an open bankruptcy proceeding.
Ultimately, if you are struggling to figure out how to get control of your tax debt, exploring an offer in compromise is probably a worthwhile endeavor.