There are many ways for individual taxpayers to fall behind on their tax obligations. Perhaps someone recently shifted to a self-employed profession and failed to set aside money to cover their tax obligations. Maybe they over-reported their deductions and credits to an employer because a family member died or aged out of eligibility.
Perhaps job loss or secondary streams of income complicated the process of estimating and paying taxes. The taxpayer may have even forgotten to file a tax return. Regardless of how tax debt accumulates, people who owe money to the Internal Revenue Service (IRS) for federal income taxes face major consequences.
The IRS imposes penalties and collects interest on past-due tax balances. What people owe may slowly increase over time because of IRS policies. How can those with seemingly insurmountable income tax debts regain control of their finances?
Taxpayers can settle their tax debts
Contrary to what many people have heard, the IRS does not always demand payment in full for all income tax debts. Taxpayers who acknowledge their obligations can sometimes propose a settlement that reduces the amount they have to pay.
The IRS does accept offers in compromise in some cases. Taxpayers who do not have enough resources or income to pay what they owe in full can propose a settlement to the IRS. An offer in compromise might involve a series of structured payments. It could also entail a single, lump-sum payment based on the current financial circumstances of the taxpayer.
Those hoping to reduce the total amount owed to the IRS must evaluate their tax debt and finances carefully. They can then propose specific terms that may be acceptable to the IRS. Individuals hoping to resolve tax debts with an offer in compromise may need help with that process.
Those dealing with tax controversies generally have the right to secure legal representation. A lawyer can help them review their tax situation and develop an offer in compromise. A tax attorney can even handle the process of negotiating and fine-tuning the offer with the IRS.
Recognizing that there are solutions for income tax debts that can protect people from ever-increasing balances and the risk of prosecution can inspire taxpayers to take action. An offer in compromise is one of several options available for those who may not have paid the full amount that they owe for income taxes.