Income tax oversights and errors can cause financial devastation. The unpaid amount due to the Internal Revenue Service (IRS) can increase rapidly. The IRS assesses interest and also imposes fines for underpayment and late payment of taxes.
Taxpayers might make the same income tax return mistake repeatedly until they receive a letter from the IRS. What started as a small mistake can quickly snowball into tens of thousands of dollars in federal tax debt.
Taxpayers may not be able to pay everything they owe all at once. Seeking to settle the debt is a common approach. For some taxpayers, making an offer in compromise might be a valid option. What does an offer in compromise generally require?
A reasonable payment plan
Many offers in compromise involve regular payments. People with income but limited resources on hand could negotiate a payment arrangement in which they make monthly payments to the IRS to slowly pay down what they owe. The IRS may accept a proposal based on repaying a certain portion of the tax debt over multiple years.
A lump-sum offer
An offer in compromise can also involve a lump-sum payment. Those with limited future earning potential may find that this is their best option. They can ask to settle the tax debt for a portion of what they owe based on their current income and resources. The IRS generally expects people to make a good-faith effort to repay what they owe.
Reviewing tax debts with a legal professional can help people put together a viable offer in compromise to resolve their income tax debts. Taxpayers who propose offers in compromise may be able to take control of their obligations and avoid escalating collection efforts.