Tax Debt - Can I Really Pay Pennies on the Dollar?!
Have you have run into tax troubles and owe the IRS big
money? The reasons so many taxpayers
incur a big tax bill vary from simply avoiding filing tax returns, to being
self-employed and underestimating the amount of income and self-employment tax
you will owe at year end. It can start
one year and then just keep piling up to the point where you have trouble
catching up.
There are commercials out there that hawk “Settle your IRS
debt for pennies on the dollar!” This
sounds great – but it is not as attainable as it sounds. These ads are referring to Offers in
Compromise, agreements with the IRS for taxpayers that have a large balance due
and cannot afford to pay it back in full.
The IRS does not write off debts unless they are pretty
certain they will not be able to collect the full debt within a given time
period, or if to do so would cause an undue hardship on the taxpayer. It is an option for people who truly cannot
and will not be able to pay off their debt in the near future. If the IRS accepts you into this program, you
will agree to pay a smaller amount of tax to settle the debt. This sum is usually paid in one lump sum, but
may also be spread over a few payments.
The process from application to end can take several months and sometimes up to a year.
More commonly used is an agreement to pay your tax debt over
time. The IRS offers installment payment
plans depending on the amount you owe.
This option allows you to pay your overdue tax bill monthly until it is
paid off.
Both of these options require that you stay compliant,
meaning that all tax filings are filed and paid on time in the future.
Honorine M. Campisi,
CPA
