If there’s one group you never want to mess around with, it’s the IRS. Failing to meet federal tax obligations (or lying about them in order to pay a smaller amount) can lead to serious legal consequences, including fines and even jail time. But what happens if you financially cannot pay the amount that the federal government insists that you owe?
Fortunately, in such circumstances, you are not without options. An “offer in compromise” may be able to help you avoid a serious legal complication. What is an offer in compromise? Here’s what you need to know.
What Is an Offer in Compromise?
First things first, what is an offer in compromise? As the name would suggest, an offer in compromise is an offer of payment to compromise on the amount you actually owe the federal government. It’s something that will allow you to pay any tax debts you owe to the government for less than the amount you owe when you cannot pay the entire amount.
Who’s Eligible for an IRS Offer in Compromise?
There are only a few circumstances under which one can fill out an IRS Offer in Compromise tax form. These circumstances are:
- Complete inability to repay the amount of tax debt required
- Doubt as to Liability, or a suspected miscalculation of the amount owed by the taxpayer
- Effective Tax Administration, or a circumstance where a taxpayer could pay, but it would destroy their finances to do so
The approval rate for an Offer in Compromise is extremely low. So, while it is on the table as an option, you would need a legal professional to help you understand the implications.
Make Sure to Follow This Offer in Compromise Advice
If you want to increase your chances of approval for an offer in compromise, you need to have thorough records of your finances throughout the past year. If you intend on claiming an economic hardship, you’d best have the bank statements, medical documents, and other proofs to back it up.
Additionally, you should have a backup plan to repay your tax debts in the event that you can’t get approved for an offer in compromise. If there’s one thing the government will never allow you to forget, it’s the debts that you owe them. Depending on the type of debts you owe the IRS, they can garnish your wages to collect the amount that’s owed to them.
Let’s Review the Basics of Our Offer in Compromise Guide
Getting back to the basics, what is an offer in compromise? In essence, an offer in compromise allows you to repay tax debts that you owe the IRS for less than the full amount in the event of financial hardship, a federal miscalculation, or complete inability to pay. However, it’s not easy to get approved for one, so you may need to have a backup plan at the ready just in case.
If you’d like to learn more about thorny IRS issues like this, then check out our blog for more articles like this one.
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