Potential Tax Settlement Options for Paying Back Taxes Include an Offer in Compromise

Many people who have fallen seriously behind in the payment of their federal taxes often hire tax attorneys or a CPA to help them resolve their problems with back taxes. Another approach involves working with enrolled agents, who are professionals licensed to settle debts with the IRS.

One IRS tax settlement strategy that is available to people with unpaid back taxes is to submit what’s called an offer in compromise. This potential solution to catching up on back tax can allow a person to settle their IRS tax debt for less than the full amount owed. Depending on the circumstances, the IRS considers it a legitimate option for people who can prove that they’re unable to pay their full tax liability or that doing so would cause them serious financial hardship.

The Internal Revenue Service’s Web site lists the forms, application fees, and steps for submitting an offer in compromise. A well-prepared submission that takes into account the ability to pay, income, expenses, and asset equity stands a good chance of approval by the IRS. As stated on its Web site, “We generally approve an offer in compromise when the amount offered represents the most we can expect to collect within a reasonable period of time.” One major eligibility hurdle is that the applicant can not be involved in an open bankruptcy proceeding. Another potential stumbling block would be a determination that the IRS back taxes could be paid in installments.

While it is possible for an applicant to submit the required forms, the $150 application fee, and the initial 20% payment on their own, many people choose to get tax help from a tax relief attorney or another qualified tax advocate. Among the advice that the IRS offers to people seeking tax resolution services is to make sure the adviser is qualified. According to the IRS, anyone who charges a fee to assist in the preparation of an offer in compromise must have a current preparer tax identification number (PTIN). It’s also important to know whether a tax consultant can represent you before the IRS if the agency has questions. A tax professional needs to be a CPA, an attorney, or an enrolled agent to be allowed to fully represent you before the IRS in a collection matter.

Although business tax problems and having to pay back taxes can be stressful, fortunately there are tax debt reduction solutions and help with back taxes that can enable individuals and small companies to resolve their debt to the government and get on with their lives.