Tax debt can add up quickly, and when it does, getting up to speed with the IRS may seem like an impossibility. Taxpayers, to be sure, are not necessarily required to pay all their tax debt back immediately. There is the possibility of paying the debt back on a monthly basis through an installment agreement.
There are definite advantages to reaching such an agreement with the IRS, but what about cases where paying the full amount of debt back is just not feasible? In such situations, a taxpayer may be able to reach a settlement agreement with the IRS to pay back the tax debt for less than the full amount. This type of arrangement is known as an offer in compromise.
To be eligible for an offer in compromise, a taxpayer must be facing a financial hardship which prevents him or her from paying the full amount. The IRS takes into account all relevant circumstances when determining if there is a financial hardship. Typically, the IRS will only accept an offer in compromise for an amount which it feels is the most it is likely to be able to receive payment in the foreseeable future. Making a strong, well-support offer is therefore very important.
Although a taxpayer is free to attempt an officer in compromise on his or her own, it can help to work with an attorney who is familiar with how to deal with the IRS and how to make a strong argument for the amount offered. Working with an attorney also ensures that one will receive the advocacy necessary to deal with any issues that may arise in the repayment process.
Source: Wamc.org, "Tax Preparers Get Ready To Be Bearers Of Bad News About Health Law," Jeff Cohen, Jan. 24, 2015.