For millions of Americans, tax debt is a frightening reality. The prospect of an audit and facing thousands of dollars in IRS debt can be both demoralizing and overwhelming. Fortunately, with the right guidance, people can explore various options to reduce, eliminate or repay debt without a significant penalty.
Individuals often explore the process of an offer in compromise to settle tax debt. Based on certain eligibility requirements, people could settle the tax debt for less than the total amount owed. There are two key factors:
- The individual cannot pay his or her full tax liability.
- Paying the entire tax liability will create a significant financial hardship.
The IRS will often examine the individual’s entire financial picture before reaching a resolution. They might take income, expenses and asset equity into consideration before negotiating a compromise. That said, the IRS traditionally approves the offer if it is made in good faith and represents a true picture of how much debt can be reasonably repaid without suffering financial peril.
Not everyone is eligible
While an offer in compromise is a strong option to guide individuals and families out of mounting tax debt, the path is not open to everyone. For example, the IRS offer in compromise pre-qualifier requires answers to questions centering on ongoing bankruptcy proceedings and the filing of all required federal tax returns. Based on eligibility, income, debts and assets, individuals can negotiate an offer in compromise with the IRS to settle tax debt.
Rather than living under the threat of mounting debt, increasing tax liability and severe consequences, it is wise for people to work quickly to explore the options at their disposal. The IRS would rather negotiate a settlement for an acceptable portion of repayment than continuing to pile further debt upon people who will be unable to pay any of it.