Falling on hard financial times can be an anxious period for you, particularly if you owe money in back taxes. Still, even if you have a hefty tax bill, the IRS does provide leeway to some people by accepting an offer in compromise. However, not everyone will successfully apply for this option.
An OIC is for people who cannot pay a tax bill in full. Instead, they will offer to pay off part of the bill while the IRS forgives the remainder. While this may seem like the answer you are looking for, the IRS does not grant an OIC easily and may find a reason to reject your application.
Qualifications for an OIC
The Motley Fool explains that for the IRS to agree to an OIC, the agency has to accept that you do not have the assets or income to pay your past taxes and that your financial situation is not likely to change going forward. In addition, your attempts to pay your tax bill would constitute a major financial hardship. You would have to forgo basic living necessities like food or medicine in order to gather the money to pay off your taxes.
The problem you might encounter is that the IRS will decide that you possess enough assets to pay your tax bill without compromising living necessities. You might not even be aware of some kinds of assets, such as your home equity. If you are a homeowner and your home has built up thousands of dollars in equity, the IRS would probably count the equity as an asset.
The state of your job is also something the IRS will consider. If your industry is economically unstable, you could face a pay cut or a layoff. On the other hand, your field could be stable and has strong growth potential, which will likely result in your wages increasing. Steady or growing income could lead the IRS to believe that you can pay off your outstanding taxes over time.
Check for alternatives to an OIC
If you fear your situation will not allow for an OIC, the good news is that the IRS may accept an installment plan from you instead. You would pay off your tax debt in monthly payments that you can handle without hardship. Establishing this or another alternative could avoid wage garnishments and other penalties from the IRS.