Tax Settlement and Tax Debt

January 26, 2014 by in category Tax Debt, Taxes tagged as , , , , , , with 0 and 0
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Owing back taxes and tax debt can be one of the biggest bothers, something that is often unforeseen. While it certainly can be an unwelcome and unpleasant situation to be in, it can always be worse, and definitely is not the end of the world. No matter how much tax debt you find yourself in, there is almost always a viable and respectful way out. It may not always be the most appealing, but finding a tax settlement with the IRS is not only in your best interest, it can also be relatively simple depending on your situation.

Securing An Offer In Compromise (OIC)

If you are someone with substantial, or even slight tax debt, then you want to seek a tax settlement with the IRS through what is called an offer in compromise, or OIC. It is an arrangement between you, the tax payer, and the IRS to eliminate your liabilities while paying less than the total debt you owe. While this certainly sounds like an ideal situation for someone that owes the IRS back taxes, however, securing such an agreement is not always easy, it usually requires concessions and proof that you are unable to pay the full amount.

For instance, you must show that you are unable to fulfill your debt obligation within a reasonable pay period, even with the possibility of paying in installments. Additionally, if you can prove that the amount the IRS says you owe is incorrect, or otherwise unusual, then you may also be able to secure an OIC. In terms of the IRS asking for payment in full, you must prove not only that you are unable to make such a large payment, but that doing so would cause you severe economic problems. This most often occurs when someone is ill and can’t work to pay off the debt, or would not have enough money to pay their living expenses, especially after selling assets to pay the given tax debt. Ultimately, it is the IRS that makes the decision, but it is your job to make that decision easy by accurately presenting the value of your income and assets so they can make a fair determination of your payment potential.

The best way to present an OIC is to be as forthcoming with the value of your assets and income as possible. So, if you currently have $50,000 in assets, and surplus income of $20,000, then your OIC should probably be around $70,000, assuming you owe more than that.

Additional Steps

Before you actually submit your OIC, it is important to know that you must first file all tax returns that you are legally obligated to, which includes all returns you have failed to do so with in past years. You must also make the required tax payments for the current year so your debt only extends to years prior. Lastly, if you own a business, you first must make all necessary federal tax deposits for the business quarter, and/or settle any bankruptcy proceedings that are in progress. In order to start the OIC process you should fill out a 656 form and pay the non-refundable processing fee, hiring legal representation is entirely up to your discretion, doing so may help your chances of getting approved.

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