Offer in compromise: settling your tax debt smartly
If you feel overwhelmed by tax debt, the Internal Revenue Service offers a compromise program you can use as a lifeline. This program allows you to settle your tax liabilities for less than the total amount owed. However, there are requirements that you must meet to be eligible.
Payment options: lump sum or periodic?
With lump sum cash, you make an initial payment with your application. This should be 20% of your total offer amount. If your offer is accepted, you will have five payments to clear the remaining balance. If you prefer flexibility, you may opt for a periodic payment. You will need to submit your initial payment with your application. Then, you can continue with monthly installments while the IRS evaluates your offer. Note that low-income applicants can also get a break. They can skip the application fee, initial payment and monthly installments during the review process.
How it works and what awaits
While the IRS evaluates your offer, your payments and fees gradually reduce your tax liability. At this time, all other collection actions will be stopped. If they accept your offer, you must meet all the offer terms, including filing required tax returns and making payments. The IRS will not release federal tax liens until your offer terms are satisfied. Otherwise, you have 30 days to appeal if they reject your offer.
There is more than one way to find tax debt relief. Some folks opt for a direct approach, while others enlist the help of credit counselors, debt settlement companies or debt relief agencies. Offer in compromise provides a legitimate option to settle tax debts. It is a smart choice for those facing financial hardship or struggling to pay their full tax liability.