There are times when people find themselves unable to pay the full balance of the taxes that they owe. It’s not just that they’ve gotten behind on their taxes. They don’t believe they’re ever going to be able to pay off the amount that is outstanding.
One potential solution is to use an offer in compromise. The IRS has to approve this, but it allows someone to pay less than the full amount that they owe. Once you’ve paid the smaller amount, the rest of the debt is forgiven and your tax issues are settled. This can be an attractive option to those who believe they will never have enough to cover the full balance.
Factors the IRS considers
Now, the IRS doesn’t let anyone use an offer in compromise. They have to consider your exact situation. What they’re looking for is a circumstance where paying the debt would create a financial hardship for you or where they believe it’s going to be impossible anytime in the near future. They will consider factors like:
- Your ability to pay at the moment
- The other expenses that you have
- What your monthly income looks like
- Any equity you have in assets you own
For example, if you owed $20,000 but you couldn’t pay it, the IRS may look at your current income and expenses and determine that you could pay $10,000. Rather than getting nothing from you and seeing that tax debt remain unpaid, they could extend the offer in compromise so that they at least get a partial payment.
You can see how this could be a major benefit to you, so make sure you know what legal steps to take.