If you are behind on your taxes, an offer in compromise (OIC) may be authorized by the IRS, giving you the opportunity to settle the debt without paying the full amount owed.
The IRS has created this program because there are situations in which individuals and business owners owe more in taxes than they can realistically afford to pay without causing serious financial hardship. In some cases, the IRS understands that it may receive nothing if the individual simply cannot pay the debt. An offer in compromise reduces the tax obligation to an amount the taxpayer can realistically afford, allowing the IRS to settle the account and resolve the debt.
What factors are considered?
The IRS will evaluate several different factors, starting with the total tax debt and your ability to pay. To make that determination, the IRS may review:
- The equity you have in tangible assets
- Your income level
- Your monthly expenses
- Your overall financial situation
If the IRS determines that you do have the ability to pay the full amount over time, then an offer in compromise may not be approved.
Can one offer address personal and business taxes?
In some cases, a sole proprietorship offer can be combined with personal tax obligations. This is because the business owner is taxed directly when operating a sole proprietorship.
If the business uses another corporate structure and is not directly tied to your Social Security number (SSN) as a sole proprietorship, however, then separate offers may need to be submitted.
Considering your options
An offer in compromise is not available in every situation, but it helps demonstrate why it is so important to understand exactly what legal options may exist when facing serious tax debt issues.