There are a lot of ways to go about resolving your tax debt. If you’re handling one for the first time, though, it’s easy to get confused about which option is best for you. Since time is a factor in your decision, it’s wise to consider your circumstances and how they apply to the resolution choices available to you. Waiting too long to tackle your tax debt can mean additional penalties and interest, as well as more aggressive collection actions.
Naturally, the best move is to pay back everything you owe at one time. There’s an excellent chance though, you’re like most people and this isn’t a possibility. When you’re weighing your resolution options, watch out for offers that sound too good to be true. While there are legitimate ways to attain a formal resolution with the IRS, there are several pitfalls to avoid in the process. The Offer in Compromise is a great example of a risky proposition many taxpayers should think twice about.
What is an Offer in Compromise?
An Offer in Compromise, or OIC, is a settlement with the IRS which allows you to pay far less of your debt than you actually owe. The program is designed to assist taxpayers who would experience a financial hardship as a result of paying back their entire liability. While this certainly sounds like a great deal, there are a lot of details to review before considering an OIC.
Bankruptcy – If you’re currently in bankruptcy, you won’t be considered for an Offer in Compromise
Sharing Your Finances – Be prepared to disclose you financial details, including your pay, expenses and banking info if you request an OIC
Extending Your Debt – The expiration on your debt is ten years from the date it was assessed and is uncollectible after the ten years is up. Requesting a settlement offer stops the clock on your debt while it’s being considered, which may take a year or more
Penalties and Interest –However long it takes to get an answer on whether you’re approved for an OIC, you’ll continue to accumulate penalties and interest on your debt
Your Chances – The likelihood of getting approved for Offer in Compromise is slim, to say the least. Very few of the requests for an OIC are granted each year (generally less than 25%)
Maybe You Should Reconsider
An Offer in Compromise might be the right answer for you, but you may want to consult with a licensed tax professional to be sure. Be wary of any tax resolution company that makes promises regarding an OIC, or assures you the debt can be settled for “pennies on the dollar”; there are no guarantees when you request a settlement offer.
You have several viable options available to you when figuring out how to resolve your debt. A licensed tax professional will review your situation and will suggest what makes the most sense for you. The important thing, after all, is that your tax debt gets resolved – however you’re able to do it.