Owing back taxes can be more stressful than owing debt on a revolving credit line such as a credit card. An option for relief is available with taxes that you may not be able to get with other types of debt. The name for this type of relief is Offer in Compromise and it may be used to satisfy tax debt for a lesser amount than what you are due to pay.
Not everyone is eligible under the Offer in Compromise program and individual’s situations will be analyzed on a case by case business. It is best to seek the advice of a tax attorney before getting too involved in the process to make sure that you are indeed a good candidate. A good place to start is by visiting a reputable tax attorney. The rate of acceptance for tax settlements is under 25% so it is highly advisable to seek the guidance of a tax attorney.
Another condition to note when seeking a tax settlement is that a 20% “down-payment” must be submitted with the application for an Offer in Compromise. Since this amount is non- refundable it is a recommended that you seek the help of an experienced tax attorney.
Do I Have a Shot at Settlement?
There is a good chance that the IRS will consider you for a tax settlement if you owe so much that you may never recover financially from payment of it. Again, cases are analyzed on an individual basis so it is best to speak with a tax attorney to determine if you might be eligible.
When You May Not Have a Good Chance for Settlement
The IRS evaluates the effect of a possible settlement on other taxpayers. If this happens you will end up losing your 20% payment that was submitted with your application. An IRS Installment Agreement is a good option for anyone who does not have the funds to pay for the back taxes in full. Another option for someone in this situation is to pay by credit card.
If you cannot pay a lump sum, an installment agreement allows you pay out the balance over a period of time. It is important to remember that the longer it takes you to pay your back taxes, the more interest and penalties you will end up paying in the long run. On the other hand the penalties are not quite as severe if you enter into an installment agreement then if you do not. Entering into an installment agreement also allows you to avoid having collections come after you and you will remain in good standing with the IRS.
If you pay by a credit card, you will most likely avoid the much higher interest rates charged by the IRS. It is important to compare rates though to see which option will be less expensive in the long run. A tax attorney can help in the strategizing of paying off back taxes if you can’t obtain a tax settlement.