Dealing with tax debts is not as hard as many people expect. The IRS offers two programs to help taxpayers resolve their unpaid taxes. They may even be willing to settle for less than is owed in some situations. When a taxpayer cannot afford to repay their full amount of tax debt, the IRS allows for the taxpayer to request an Offer In Compromise.
What is it?
An Offer In Compromise (OIC) is a proposal submitted by the taxpayer to the IRS that includes an offer of repayment they determine is reasonably affordable. The taxpayer determines the amount they can realistically afford to repay according to their income and other debt amounts. The IRS will review the taxpayer’s financial information to decide whether the offer presented in the OIC is acceptable. The IRS is looking for proof that the taxpayer is unable to pay the full amount and that their offer is equal to or greater than the reasonable collection potential, or the amount they are able to pay.
How does it work?
Once the IRS accepts an OIC, there are three different options for repaying debts. The cash offer plan will require the taxpayer to pay 20% of their settled tax debt upfront and pay the debt in full within 5 payments. The short term deferred offer allows for the taxpayer to pay the settled tax debt amount within 24 months, while the long term deferred offer provides the tax payer as much time as they need up until the expiration of the collection statute.