The Internal Revenue Service (IRS) regularly reviews financial records for individuals and businesses. The IRS collects taxes and can refer cases out for prosecution in scenarios where people refuse to pay their taxes or engage in fraudulent financial activity.
Many people accused of underpaying their taxes did not act with malicious intent. Instead, they may have simply made mistakes or oversights when filing their income tax returns. Unfortunately, the IRS can still assess penalties and interest on underpaid taxes regardless of why someone did not pay the full amount they owed at the time they filed their tax return. The amount owed can slowly but steadily increase when the taxpayer cannot pay what they owe immediately in full.
Is it ever possible to settle tax debt because the taxpayer cannot afford the full amount?
The IRS does work with some taxpayers
The IRS has a reputation for being a harsh enforcer of financial obligations. The organization has the authority to levy assets, place liens against valuable property or garnish the wages of those with outstanding tax debts. Those aggressive collection efforts can often leave people in worse financial circumstances.
Particularly in scenarios where someone owes more than they can pay in the foreseeable future, they may want to negotiate an offer in compromise with the IRS. An offer in compromise is essentially a settlement arrangement for tax debts.
There are two different ways to structure an offer in compromise. Sometimes, the taxpayer has resources that they can liquidate. They can make an offer for a lump-sum payment that covers a portion of what they owe but not the full amount. Other times, they might propose a structured repayment plan. The IRS may agree to accept a series of monthly payments from an individual who cannot pay the full amount that they owe at once.
In some cases, the IRS may counter an initial offer. Other times, it may be necessary to rework an offer in compromise if the IRS does not approve it initially. Many people find it difficult to put together an offer on their own behalf. Partnering with an attorney familiar with tax law can be beneficial for those who have past-due income tax obligations. Attorneys can help people review their income tax debt and plan an offer in compromise accordingly.