Self-employed persons, investors receiving interest payments and individuals who did not make sufficient estimated tax payments are among those who may face a heavy tax bill come filing season. However, California taxpayers overwhelmed with multiple debts and other obligations might find making those past-due tax payments challenging. Setting up an installment agreement might not work when the debt is high, and the taxpayer’s assets are minimal. In such situations, making an offer in compromise (OIC) could be a workable plan.
Putting an offer in compromise forward
As the name suggests, an offer in compromise refers to a settlement plan put forth by a taxpayer. When the taxpayer’s ability to pay the debt proves questionable, the IRS might accept a lump sum payment on a portion of the balance due. Sometimes, the IRS allows a taxpayer to complete an OIC in several payments. Be mindful that interest and penalties continue to accrue on any remaining balance until the obligation is paid in full.
Not everyone qualifies for an offer in compromise plan. An IRS representative will review all submitted documents to determine eligibility. Taxpayers must submit a specific form designed to initiate a formal request for an OIC, and the form would require details about the taxpayer’s current financial situation. If the IRS feels the person cannot repay the debt, the agency might accept the OIC.
Other points about an OIC
Sometimes, paying tax debt could create a financial hardship for someone even when the person has the means to pay. Such taxpayers could apply for an OIC and receive a positive response. Not every taxpayer knows about these rules, though.
If the IRS denies an OIC request, that does not necessarily end things. A taxpayer may file an appeal within a specific timeframe. The appeal could reverse the initial denial.