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IRS may be accepting more offers in compromise than in the past

There was a time when "haggling" was considered a legitimate strategy in most transactions. These days, big-box retailers and grocery stores are not really willing to listen to customers trying to pay less than the advertised price. Haggling is now pretty much limited to car dealerships and certain hotels.

That being said, the Internal Revenue Service is sometimes willing to haggle with taxpayers over back taxes. Through a program called "offers in compromise," the IRS sometimes agrees to settle tax debt for less than the full amount owed. As with many IRS matters, however, offers in compromise can take years and a lot of paperwork.

The good news is that the IRS seems to have improved its acceptance rate in recent years. In 2010, the agency was only accepting about 25 percent of offers from taxpayers who owed back taxes. As of 2013, the acceptance rate had risen to about 42 percent.

When you make an offer to settle tax debt, it is not the usual negotiation starting with a low-ball offer. Rather, you must first demonstrate that you have an inability to pay the full amount that you owe. And your offer must generally reflect an amount that you can afford to pay (and not significantly less).

Unfortunately, the approval process can take one to two years, and your financial circumstances could change during that time. If the IRS takes a while to process your offer, the agency may look at your ability to pay at the time the offer is approved or rejected rather than when it was submitted.

If accepted, and offer in compromise can be an incredible source of relief for taxpayers who are in over their head. In order to maximize your chances of approval, it’s a good idea to seek the help of an experienced tax law attorney.

Source: The New York Times, "If You Owe Back Taxes, Try Making the I.R.S. an Offer," Charles Delafuente, Feb. 14, 2015

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