Have you fallen behind paying the IRS taxes? Ever since you received a bill demanding the due amount on your tax return, you will be the subject of the collection until you pay in full. However, the dramatic interest and penalties could make it overwhelming to satisfy your liability.

The good news is that, if you meet several qualifications, you may be able to resolve the ever-growing tax debt through an Offer-in-Compromise.

An Offer-in-Compromise (OIC) is a settlement tool for a taxpayer to satisfy a tax liability by paying less than the full amount owed. Unlike the installment plan the IRS provides, interest will not be added on the unpaid balance after the acceptance of an OIC. The IRS will accept the offer only if the offered amount is reasonable depending on the taxpayer’s tax history, financial situation, ability to pay and tax debt type.

In general, you must offer more than a certain threshold of your “Reasonable Collection Potential.” The Reasonable Collection Potential is determined by the equity in your assets and your income/expenses ratio. Therefore, it is crucial to estimate a reasonable amount in your best interest as well as within the range of acceptable offers the IRS has set. Additionally, a variety of supporting documents must be followed to verify your ability to pay the offer amount and the financial hardship which made you unable to pay in full.

To be eligible, you must:

Have filed all tax returns and will do so for next five (5) years after the acceptance of the OIC;

Have received a bill for at least one tax debt included on your offer;

Make all required estimated tax payments for the current year;

Make all required federal tax deposits for the current quarter if you are a business owner with employees;

Have no pending bankruptcy case at the time of offer; and

Not be “Currently Not Collectable” due to hardship.

Additionally, the establishment of the OIC has several legal consequences. For example, you would not receive any tax refund, including interest, after the acceptance of the offer until you pay off the balance in full. The IRS will retain all refund but it would not be considered as a payment toward your offer. Also, the statute of limitations on your IRS debt collection, which is normally 10 years from the assessment, will be extended for the period of time your offer is pending. In case your offer is denied, returned or terminated, or you withdraw your offer; one additional year will be added to the time limit the IRS can collect your debt.

After the acceptance, one thing to keep in mind is that you still have to file the tax returns to avoid being considered in default in your tax debt and avoid a penalty for failure to file a tax return.

If you are interested in discussing the best option for your tax debt settlement more in-depth, contact our office at 718-539-1100 or email us at info@jckimlaw.com.