How To Settle Tax Debt For Less

Here is how to settle tax debt for less using a popular Internal Revenue Service program that may be available to you. If you owe a large tax bill this year that you simply don’t have the ability to pay immediately, you may feel under a lot of pressure to get it paid off as soon as possible. Investigate all your options before you do so.

The IRS has a program called an offer in compromise (OIC) that may allow you to settle your tax debt for less than what they say you owe. This program offers one of several different ways to get out from under the stress of your tax debt. However, an offer in compromise has often been misunderstood by consumers. Here are the facts.

How Does An Offer In Compromise Work?

As of July 2006, people who are applying to get an offer in compromise must start making their payments on any proposed settlement immediately. There are three different payment options available. They include a lump sum option, monthly payments over 24 months or less, and a monthly payment schedule that may span years. The law also specifies that applicants choosing the lump sum option provide a 20% down payment on their tax debt.

You should understand the IRS decides whether or not they will settle your tax liability for less than the full amount owed. If they foresee an inability to collect the full amount or doubt whether you are even liable for that, the IRS may settle with you.

What Am I Agreeing To?

What promises does an offer in compromise include? First you are agreeing that you will pay the amount listed in the OIC. You are also promising that you will file tax returns on time and pay your taxes in full for the next five years. You are making an agreement with the IRS which will allow them to keep any of your tax refunds, payments and credits made prior to submitting your OIC. You are also agreeing to let the IRS keep any tax refund due to you in the calendar year that your OIC was approved.

If you back out or do not fulfill your obligations under the terms of your OIC, the IRS can revoke the document and reinstate the full amount of your tax liability. If for some reason you find you cannot file your taxes by April 15, you must request an extension and pay any possible tax liability at that time.

How Long Does It Take?

Be prepared to wait for long periods of time for an OIC to get approved. In fact, it can take one to two years just to complete the process. It may take several months just for you to prepare the forms and documentation needed for an offer in compromise. Then, the IRS has to process the offer which can take anywhere from 12 to 18 months. No one ever said the government was fast. Once an OIC is approved, it may take up to three months to finalize the offer and make the payment arrangements.

The average time period for the IRS to approve an OIC is about 380 days, although you could get lucky and have a shorter processing time. There is a charge to file an OIC, so check with the IRS or your tax professional to find out the current fee.

More on How to Settle Tax Debt for Less

If you're wondering how to settle tax debt for less, the offer in compromise is probably the most popular scenario. However, you can also check with your tax professional to see if there any other options available.

Applicants can obtain more information about an offer in compromise by contacting the IRS by phone or on their website. There are specific forms and instructions that you must follow in order to find out if you're eligible for the program.