I Owe the IRS More Than I Can Pay. What Are My Options?

If you owe more on your taxes than you are able to pay, one path to consider in reducing your tax debt is to submit an Offer in Compromise (“Offer”). This is an agreement between you and the Internal Revenue Service (“IRS”) which settles your tax debt for less than the full amount owed. Unfortunately, the IRS won’t just accept any Offer – it must be appropriate based on what the IRS considers your true ability to pay.

There are several rules you must follow and criteria that must be met for you to qualify to make an Offer. First and foremost, the IRS will not consider any Offer if you have the ability to pay your tax debt in full within 10 years of when the debt accrued. Taxpayers must also: (1) file all legally required tax returns; (2) have received a bill for at least one tax debt included on his or her Offer; (3) make all required estimated tax payments for the current year; and (4) businesses must make all required federal tax deposits for the current quarters. There are several forms that require detailed descriptions of your assets and income, among other things.

There are two kinds of payment options: Lump Sum Cash and Periodic Payment. Under Lump Sum Cash, 20% of the total offer amount must be paid with the Offer, and the remaining balance must be paid in full in no more than 5 monthly payments. Under the Periodic Payment option, the first payment must be paid with the Offer, and the remaining balance must be paid in 6 to 24 months. This wide-ranging pay period is determined by the proposed terms in your Offer (which must be based on your true ability to pay). While choosing your own repayment period can provide you with flexibility, it has the downside that even a single missed payment causes the Offer to be returned, without appeal. Taxpayers should also be aware that the IRS will keep any tax refund you may have been expecting for the calendar year in which you filed your Offer.

This website supplies general information about the law but it is provided for informational purposes only. This content does not create an attorney-client relationship and more importantly is not meant to constitute legal advice. You should not act on any of the information contained herein without first consulting an attorney.

Making an Offer in Compromise can help ease your tax burden and give you time to pay your debt to the IRS. The attorneys at Camden & Meridew are experienced in helping clients determine if they qualify for an Offer in Compromise and whether they should pursue this as a solution to their tax debt problems. If you think you may qualify, or are interested in learning more, contact our office at (317) 770-0000.

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