If
IRS is after you to collect a tax liability that's beyond your capacity to pay, you should
be aware of a technique that may allow you to settle your tax debt for a fraction of its
face value. It's called an offer-in-compromise.
Like
any creditor, IRS prefers a partial payment to no payment at all. Thus, IRS is sometimes
willing to settle a tax liability for less than the full amount if (a) the taxpayer is
unable to pay the full amount, (b) there is doubt as to how much the tax liability is, (c)
collection of the liability would create economic hardship for the taxpayer (such as where
the taxpayer is out of work due to health problems, or where sale of assets to pay the tax
would leave the taxpayer without enough money to meet basic living expenses), or (d)
exceptional circumstances exist such that collection of the liability would be detrimental
to voluntary compliance by taxpayers. Exceptional circumstances include situations such as
reliance on erroneous advice from IRS, or a medical condition that prevents the taxpayer
from managing his financial affairs.
The
taxpayer starts the settlement process by making an offer- in-compromise. If the offer is
grounded on any reason other than doubt as to how much the tax liability is, financial
information must be submitted along with the offer. If it is grounded on doubt as to the
liability, IRS is not permitted to request a financial statement.
If
an offer is accepted, the taxpayer must be careful to file returns and pay taxes for five
years. If these requirements are not met, the compromise terminates and IRS can seek
collection of the original liability amount.
Please
call if you would like to discuss whether submitting an offer-in-compromise would be
beneficial to you.
Sincerely,
Julian
B Gassaway III, CPA
Fax (252)443-0554
E-mail
cpa@bunchcpa.com