Tax Dictionary – Tax Debt Settlement Options
The IRS can take payment directly from your bank account or you can set up payment option if you cannot pay your taxes. You can also find out if you qualify for an offer in compromise — a way to settle your tax debt for less than the full amount or request that we temporarily delay collection until your financial situation improves.
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If you can’t pay your taxes, the IRS offers several options. However, the only “settlement” option is the offer in compromise (OIC). An OIC allows you and the IRS to agree to settle your tax liability for less than the full amount you owe. The OIC is mostly for taxpayers who have few assets, low monthly income, and little or no prospects for future income.
If you can pay your tax debt, you won’t qualify for an OIC. You’ll qualify only if you can’t pay all the tax you owe with your assets and/or with monthly payments before the time to collect expires. If you qualify, the amount you pay will be equal to the value you have in assets, plus one or two years of future income, depending on the type of offer selected.
This program is not for people who are experiencing temporary financial distress. Viable businesses and taxpayers with short-term financial hardships are generally not good candidates for the OIC.
IRS.gov has a tool called the OIC Prequalifier that will allow you to put in your financial information and the taxes you owe to find out whether you might qualify. But the OIC calculation is detailed and requires proper valuation of the equity you have in your assets and your disposable income. These calculations have special rules and may require an experienced professional to help.
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