Owing money to the Internal Revenue Service is not something many Florida taxpayers wish to experience. Federal law affords options to people who owe taxes, including extensions and payment plans. However, some taxpayers may be entirely unable to pay the amount they owe. For those individuals, reaching a tax debt settlement may be worth pursuing.
Tax debt settlements
An offer in compromise (OIC) is the official name for a tax debt settlement proposal. Someone who owes a significant amount of tax could offer to settle a portion of the debt in one lump sum or a few small payments within an established timeframe. The IRS would forgive the remaining debt, realizing the person is in no position to pay.
An OIC is not meant to provide a convenient solution to someone strained over tax debts. Rather, an OIC works to help those unable to pay their obligation due to financial troubles. In other words, someone who could pay their tax debt with a routine installment agreement would not likely qualify.
Those who do qualify would complete and submit the required OIC form. The IRS will require information about household members, income, assets, and expenses. The processing time could take several months, even when the taxpayer qualifies.
Qualifying and filing
Before entering into any OIC debt negotiation steps with the IRS, the taxpayer must determine if they qualify. Statutory rules exist that establish baseline requirements, including filing all past tax returns and making all necessary estimated tax payments. Anyone involved in current bankruptcy proceedings would not qualify, and self-employed persons with employees must make all federal tax deposits.
Anyone who submits an offer in compromise should complete the form accurately and thoroughly. Errors or omissions could cause unnecessary problems and undermine a chance of settling the debt.