There are a thousand reasons people fall behind on their taxes. There are medical emergencies; loved ones unexpectedly pass away; car and house repairs drain the savings account — it can be anything that wipes you out financially or even emotionally. And for some of us, once that deadline passes, it is so much easier to forget about it.
We all know, however, that the IRS does not forget about it. Budget cuts may mean fewer audits of average taxpayers, but they do not mean that missed payments or misfiled returns will slip through the cracks. Sooner than later, the IRS will ask for its money back.
The good news is that, under certain circumstances, the IRS will take what it can get. There are times when taxpayers simply cannot pay the full amount, and the agency is not in the business of bankrupting taxpayers. It wouldn’t make sense. It does make sense to dispatch the matter quickly so both the taxpayer and the federal government can move on.
This is where the offer of compromise comes in. The idea is that the taxpayer and the IRS agree to a reduced tax obligation and a reasonable payment plan.
Of course, an OIC is not available to everyone. The taxpayer cannot be in an open bankruptcy, for example. The taxpayer must be up-to-date with all filing and payment requirements. And the taxpayer must prove that his situation warrants the OIC.
The IRS is looking in particular for information about the taxpayer’s ability to pay, his income and assets, and his expenses.
The most important thing to remember is that the agency looks at the whole picture to determine eligibility. Low income, for example, will not be as persuasive an argument if the taxpayer has several million dollars in a savings account.
This is a bare bones rundown of an OIC. If you believe you qualify or are looking for a way to manage an outstanding tax bill, we recommend contacting an experienced tax attorney in your area.
Source: IRS.gov, “Offer in Compromise,” accessed Dec. 26, 2014