People like to claim that the government always gets what people owe it. That aphorism is a way of conveying how serious the Internal Revenue Service (IRS) is about enforcing tax law and collecting on valid tax debts. Not only can the IRS hold people accountable for any underpayments of their taxes, but it may also add fees and interest to the amount owed. It could even refer certain taxpayers to federal prosecutors for criminal charges. What could have been a reasonable debt can quickly snowball into an insurmountable financial obligation.
Particularly in cases where people made consistent mistakes by miscalculating their tax responsibilities each year, they could face a tax debt that they have no realistic expectation of paying in full based on their current assets and income. Is it ever possible for someone who owes thousands of dollars in income tax debts to settle what they owe for less than the full amount?
The IRS does accept offers in compromise
Although the IRS typically wants full payment for valid income tax debts, it is also common knowledge that many people cannot bounce back from a multi-year tax controversy without significant financial hardship. Even wealthy celebrities are sometimes at risk of imprisonment when they fall behind on income tax obligations.
Therefore, the IRS does occasionally agree to reasonable tax settlements. Individuals with outstanding income tax obligations can propose an offer in compromise to the IRS. An offer in compromise might involve either a single lump-sum payment or a series of structured payments.
The taxpayer generally has to provide disclosures about their assets and income while asserting what payment arrangements are reasonable given the debt they owe. Provided that the IRS agrees with someone’s analysis of their finances, the organization might agree to a single payment for a fraction of the full debt or a series of payments that end before full repayment.
Those who have support when reviewing income tax controversies and preparing an offer in compromise are more likely to succeed if they propose a settlement of their tax debts. Learning more about how to overcome unpaid income tax obligations may benefit those shocked by the alleged shortfall of their income tax contributions.