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Offer in compromise an option for those struggling with tax debt

Every person’s reason for not paying federal income taxes is different. In some cases it is because the filer does not have the money to cover the total amount owed. Being in this financial state can be stressful for the individual facing it and they may not know how to proceed. It is possible that an offer in compromise could come into play.

An offer in compromise is a way of settling the debt without paying the entirety of what is owed. For this option to be utilized the Internal Revenue Service must provide its approval. Whether that approval will be granted depends on a variety of factors.

The first thing that must be in place for an offer in compromise to even be considered is that the filer must be current with all payment and filing requirements. In addition the IRS will look into the filer’s asset equity, expenses, income and ability to pay. With these things in mind the IRS will consider whether the amount offered in the settlement is sufficient.

In addition to potentially paying less than what is owed, an offer in compromise provides options for how the filer will pay the debt. While an initial payment should be submitted with the offer, the filer can either opt for periodic monthly payments or a lump sum approach where 20 percent is provided upfront and the remaining balance paid off in five installments or less. The initial payment that accompanies an offer is not refundable even if the offer is denied. It will be applied to the debt either way.

A denial of an offer in compromise is not necessarily the end of this process, there is an appeal process in place. A filer has 30 days to appeal that decision.

The average individual is not aware of IRS rules. Accordingly, to try to reach the best possible outcome, many find it beneficial to work with an income tax lawyer.

Source: Internal Revenue Service, “Offer in Compromise,” Accessed Oct. 24, 2014

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