Tax Debts

Making an offer with IRS to settle your tax debt at less than what you owe?

There are two payment options: Lump-sum cash, which requires 20% of the total offer amount to be paid up-front, with the remaining balance to be paid in five or fewer installments within five months of the date your offer is accepted. Periodic payment requires that your first payment be made with the offer, with the remainder remitted in monthly installments over a period of six to 24 months. Be sure you’ve filed all required tax returns before submitting your offer. Otherwise, the Revenue Service will return your application and the filing fee and apply any initial payment included with your submission to your tax debt. Individuals or businesses in bankruptcy can’t apply for a compromise offer. Check out IRS’s newly updated Form 656-B booklet for rules and forms. Also, IRS has an online tool for individuals to check preliminary eligibility for filing a compromise offer. Go to irs.treasury.gov/oic_pre_qualifier for details.

Beware of “offer in compromise mills,”

IRS’s term for firms and promoters that hawk tax-debt-relief plans with promises to settle your debts at steep discounts, even pennies on the dollar. Many advertise on radio and TV, charge big upfront fees and churn out applications for relief that some of their clients can’t even qualify for.

IRS gets its wrist slapped for being too inflexible about collecting a tax bill

A couple who racked up $33,000 in back taxes offered to settle their debt for $1,629. They claimed they couldn’t pay more money because they were in their mid-sixties, the husband was retired, they had lots of debt, and their finances were impacted by the COVID pandemic. But the IRS settlement officer and appeals officer wouldn’t bite, finding that the couple had enough income and home equity to pay the bill in full. The Tax Court ruled that IRS abused its discretion in outright rejecting the offer and sent the case back to the agency’s appeals office (Whittaker, TC Memo. 2023-59).