If you owe the IRS money, there are some important factors to keep in mind.
The first thing to note is that the IRS is like any other "lender" – they are interested in collecting what they can, when they can. This means they are always open to what is known as an “Offer in Compromise” (explained below).
The second thing to remember is that it's essential to make sure you are well represented when dealing with the IRS and as such, you should chose that representative carefully. There are many reputable firms who are very experienced in how to best present your situation to the IRS.
Additionally, it is important to understand the benefit of paying the IRS what you can afford to pay – even if it’s a small amount. Ignoring your tax debt will impel the IRS to use tough tactics against you, such as preventing you from getting future tax refunds until your outstanding debt is addressed.
Obviously, it’s always in your best interest to pay what you owe on time. But unfortunately, these are challenging economic times and it is often difficult for many people to do. That is why a number of struggling taxpayers seek out a tax debt relief firm that’s knowledgeable in dealing with the government and navigating IRS channels. A reputable company can help you get more time to pay your back taxes as well as a reduction in the amount of tax you owe.
What Is an Offer in Compromise?
An “Offer in Compromise” is essentially an agreement made between the IRS and a taxpayer that allows the taxpayer to pay less than the full amount they actually owe. With this type of agreement, the taxpayer can usually choose to make a lump sum tax payment or set up an installment plan. While it might not be for everyone, the Offer in Compromise program has enabled many taxpayers to settle their IRS tax debts.
The IRS will consider an Offer in Compromise under certain circumstances. A taxpayer may be approved for this program if the IRS concludes that the original amount due is otherwise uncollectable. Or, you may get an Offer in Compromise if you have legitimate doubt that you actually owe that amount of tax debt – called “doubt as to liability.” Finally, in some situations the IRS will accept a lesser amount than what’s owed if payment would cause undue hardship to the taxpayer or their family. (For example: a family owes the IRS but needs the money to pay for their sick child’s medical care, and paying their full tax bill would come at the expense of that care.)
Setting up an IRS Payment Plan
As stated before, it is never advisable to ignore or hide from the IRS when you're unable to pay. In fact, the IRS may be more willing to work with you than you think. If you’re unable to pay your tax liability in full, your best option may be to request an installment agreement.
Also known as an IRS Payment Plan, this arrangement allows you to pay your tax debt over a period of time (up to five years in some cases), depending on the type of tax debt and how much you owe. If you've received a notice from the IRS, your first step should be to respond by following the instructions included with the notice. Usually the IRS will instruct you to contact them by phone or mail. You will then receive further instructions and have the opportunity to request an installment agreement.
The Bottom Line
Owing the IRS can be stressful and overwhelming, but always remember that you have options. The IRS is in the business of collecting money and thus provides several ways for taxpayers to settle their debts. It is possible to put your tax debt behind you once-and-for-all, but you have to be proactive about resolving tax issues – doing nothing will only make matters worse.
If necessary, you may seek the assistance of an “enrolled agent” who is trained to represent taxpayers before the IRS. These tax professionals are experienced at setting up Offers in Compromise as well as IRS Payment Plans, and they will often work with you on a “success basis” (meaning you won't be charged unless they’re successful). As you can see, there are a variety of options available for those who cannot afford to pay their full tax liability.