If am hugely indebted to the IRS, is there an alternative for settling my arrears?
The answer to this is yes. An offer in comprise provides you with an alternative for settling your tax debts. This is a contract between you and the IRS that allows you to settle your pending tax liabilities for less than you owe.
Who Qualifies for an Offer in Compromise?
Only taxpayers with a significant amount of tax arrears qualify for an offer in compromise. Typically, taxpayers must owe IRS at least $20,000 or more to be eligible for a compromise agreement. For taxpayers with only a few thousand dollars in tax arrears, the IRS uses traditional methods to recover the money.
Apart from having huge tax arrears, many people who qualify have middle-class incomes. The IRS will determine whether it is possible to recover the outstanding taxes without an offer in compromise. This means that they will value your assets and income.
How Does the Compromise Work?
First, you will have to request for an offer in compromise through filing “IRS form 656”. You will be required to submit an application fee. Before IRS can approve your application, you will be required to submit your tax returns and estimated tax payments for the current year.
If you are eligible for an offer in compromise, the court will come up with an amount that is equal to your annual disposable income. They will then take your income and deduct it from your allowable expenses. However, this does not mean that you will pay a low amount so that you can have high transportation and housing costs. IRS will only entertain a reasonable price for your living costs. Your remaining disposal income, after your living costs have been deducted, will be the compromise. You are allowed to either pay this amount in one full payment or in monthly installments.