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Tax debt can weigh on you when you’re trying to determine how to handle it. Fortunately, there are several ways to make sure you can pay back the money you owe. One of those options is the IRS Offer in Compromise program, which allows you to pay less than you owe, with the rest of the money being forgiven. Here are four things to understand if you choose to go this route.
What Is The IRS Offer in Compromise Program?
The Offer in Compromise program is one option the IRS has in place to help people who are unable to pay the full amount of taxes they owe. This program is set up so that people who qualify can enter into a payment arrangement. This program differs from a regular payment plan in that as long as you make your payments as agreed upon, the remaining balance of the taxes due gets taken off of your record. This program allows you to only be responsible for paying back a portion of the money you owe. Each situation is different.
How Are People Approved for It?
The OIC is not an easy program to qualify for, and you must adhere to strict requirements to maintain this status. First, you must fill out an application to be considered for an Offer in Compromise. To be eligible for this program, you must be unable to afford to pay the full amount due within 10 years, be currently undergoing an economic hardship, or provide doubt as to the amount you owe the IRS.
There are also a few other qualifications. You must have filed all your prior tax returns. Self-employed and business owners must be up-to-date with any estimated tax payments or federal tax deposits. In addition, you cannot be currently going through bankruptcy.
Types of Offers In Compromise
There are two types of Offers in Compromise:
- Lump Sum Offer: This offer allows you to make a full payment to the IRS of the agreed-upon amount. You must make this payment within five months of your request’s approval. Also, you must make a down payment that covers 20% of the amount owed. This money is not refundable if your offer isn’t accepted.
- Periodic Payment Offer: This offer is one that allows you to make payments toward your tax debt. You’ll have six to 24 months to pay this debt. You’ll want to include the first payment with your application.
What Are Your Responsibilities After the Agreement?
You are responsible for following through with the agreement made between you and the IRS through the Offer in Compromise. Breaching this agreement by not making the agreed-upon payments can result in the balance that was to be wiped clean being added back to the debt you owe. If you’re not able to repay the money as agreed upon, it’s vital that you get in touch with the IRS to discuss the situation.
It’s important to understand the process of settling your tax debt with the IRS before you go through the application. If you need help, seek out professional help for the best end result. These individuals can help you navigate an Offer in Compromise if you qualify for one.