There are few experiences as intimidating as dealing with the IRS. The IRS can intercept your wages, seize or put liens on your property or even freeze your bank account. If you owe unpaid taxes, it is in your best interest that you figure out how to resolve the matter.
One of the options you can consider is striking a deal with the IRS. And while the IRS won’t always let you have your way, there are instances when you can negotiate your tax debt through what is known as an offer in compromise (OIC) arrangement.
Understanding offer in compromise
Basically, this is an agreement between you and the IRS that allows you to settle your tax debts for less than what you owe. Of course, OIC is quite complicated and not everyone qualifies for this opportunity. Eligibility for OIC is generally based on factors like your income, expenses, asset equity, as well as your ability to pay.
Types of offers in compromise
There are basically three types of OICs:
- Doubt as to collectability – This is the most common and easy to get OIC. It is based on the amount the IRS can recover from you based on its standard collection calculations. You may not qualify for this type of OIC if your assets exceed the tax debt in question.
- Doubt as to liability – If you believe the IRS is demanding more than you owe, then this type of OIC might be the right for you. However, you may not qualify if there is a final court decision on your case.
- Effective tax administration – This type of OIC is applicable to people who are unable to pay their taxes due to exceptional circumstances like an extreme economic hardship or a natural disaster.
Yes, you can potentially settle your tax debt for less than what you owe. If you are worried about the consequences of tax debt, you may benefit from finding out if you can reach a settlement through an offer in compromise, a payment schedule adjustment or an alternative approach that can help you to resolve your overdue debt.