The biggest mistake you can make if you have a balance with the Internal Revenue Service is to ignore the problem. There are choices available to taxpayers to deal with their tax balances.
Among the choices are:
- Offer in Compromise. An Offer in Compromise is the most commonly advertised solution for a tax problem but they do not work for everyone. Clients often think that the IRS will enter into a negotiation for taxes and might accept, for example, half of the amount or waive the penalties and interest. However, the IRS will generally only settle for more than is owed if the taxpayer can prove an inability to pay in full and, then, the IRS will demand, as a settlement offer, everything that the taxpayer can afford to pay. There are many calculations involved in determining whether an Offer in Compromise will work. Only about 25% of Offers in Compromise are accepted by the IRS so it is important to calculate the amount in advance.
- Installment Agreement. Taxpayers who do not qualify for Offers in Compromise or other solutions often find that the best solution is an Installment Agreement that they can afford. The most common problem with Installment Agreements is that the IRS does not use your actual expenses but the expenses that are allowable. If your lifestyle cost is higher than the IRS standards for costs, the IRS will demand a higher payment than the taxpayer can afford.
- Penalty Abatement. The IRS almost never waives interest but there are situations in which the IRS will waive penalties. The circumstances generally must be outside of the taxpayer’s control and generally must be fairly severe. Contact us to discuss the various abatement factors.
- Discharges in Bankruptcy. We do not practice bankruptcy but some taxes can be discharged in bankruptcy depending on how old the taxes are and what kind of taxes are involved. However, as a general rule, taxes cannot be completely discharged like private debts.
- Innocent Spouse Relief. If you are a spouse who is liable for taxes resulting from a jointly filed return, there are some cases where the IRS will recognize the innocence of the spouse and relieve the spouse from liability.