If the Internal Revenue Service (IRS) says you owe them money, you need to act. You may choose to contest their calculations, but, often it is better to accept they are right. If you can pay off the full amount you owe then good, but what if you cannot? What if doing so would cause you undue financial hardship, perhaps putting you out of business altogether?
The IRS has created an option for such situations– it’s known as “an offer in compromise.” Here is how it works:
It can allow you to pay a lesser amount
By making an offer in compromise you tell the IRS that you are willing to comply, but can only afford to pay a certain amount. If they accept your offer, then paying it will be the end of the matter.
To apply for one, you will have to give some personal details as well as details about your tax returns in the appropriate form. Then you must detail your assets, income, debt and expenses. You will need to justify why you can only pay the amount you are offering. If the IRS believes you could pay more without suffering undue hardship, it will likely reject your offer.
Note, that if you have already opened bankruptcy proceedings you will be ineligible for an offer in compromise.
Money problems or an unexpected tax bill can be unsettling and it can be hard to know what to do and in what order. If you find yourself in this situation, it is wise to get legal help to understand your options. If you go for an offer in compromise, having help to complete your application should increase its chance of success.