An Offer in Compromise May Help Settle Tax Liability Due to Economic Hardship

 Posted on April 30, 2020 in Taxation Law

COVID-19 has completely transformed most people’s day-to-day lives. You may be working from home or unable to work until the quarantine period is over. You may have been laid off from your job and now must survive with no income. Even if you are able to continue working, you may be left without childcare or other necessary services. These issues can quickly create serious financial hardship. You may struggle to pay your bills or even to put food on the table. During hard times like these, paying tax debts may simply not be possible. Fortunately, an “offer in compromise” offers many struggling taxpayers the opportunity to settle their tax liability for a reduced amount.

Addressing Outstanding Tax Debt Through an Offer in Compromise

Having an unpaid tax liability can be a very distressing burden to bear. If you currently owe the IRS money, you may be worried that you will be visited by an IRS agent or even face criminal charges for failure to pay. Fortunately, the IRS is much more interested in collecting unpaid taxes than punishing taxpayers who have an unfulfilled tax obligation. The agency offers several options that can help taxpayers who are experiencing financial struggles to fulfill their tax obligations and become compliant with the law.

An offer in compromise allows a taxpayer who cannot afford to pay his or her full tax debt to settle the debt for less than the original amount. If paying your full tax debt would create a financial hardship, an offer in compromise may be right for you. When deciding whether or not to grant an offer in compromise to a taxpayer, the IRS will consider the taxpayer’s income, assets, expenses, and overall ability to pay. In order to qualify for this program, you must file all of your required tax returns, and you cannot be in an open bankruptcy proceeding. The IRS typically charges a fee when submitting an OIC application; however, this fee may be waived if the applicant’s adjusted gross income or household’s gross monthly income is below 250 percent of the poverty guidelines issued by the Department of Health and Human Services. The IRS also typically requires a 20% “deposit” of the offered amount be made at the time of offer submission. Upon offer acceptance, this “deposit” then becomes part of the offered amount. HOWEVER, very importantly, if the offer is rejected, the deposited amount is NOT returned to the taxpayer and is logged as a payment toward the unpaid tax liability. John D. Teter will work extensively with you to ensure you are making a “good” (acceptable to the IRS) offer to maximize the likelihood of offer acceptance and get you back on the road of tax compliance with a fresh start and old tax debt resolved.

Contact a California Tax Lawyer

The IRS has the authority to bring civil and criminal actions against taxpayers who have unresolved tax debt. If you would like to learn more about your options for settling your tax debt, contact the John D. Teter Law Offices. Call our office at 408-866-1810 today and schedule a confidential consultation with a knowledgeable San Jose tax attorney to discuss your needs.

Sources:

https://www.irs.gov/taxtopics/tc204

https://www.investopedia.com/terms/o/offer-in-compromise.asp