Income tax debts tend to grow rapidly. The Internal Revenue Service (IRS) often imposes penalties for the underpayment of taxes, even if the underpayment is unintentional. The IRS is also notorious for collecting interest that compounds daily.
What people owe may increase relatively quickly if they do not make arrangements to manage their IRS income tax debts. In scenarios where taxpayers cannot cover the full amount due all at once, they may propose an offer in compromise. An offer in compromise is essentially a formal tax settlement offer submitted to the IRS.
Taxpayers might propose a payment plan in some cases. Other times, they may propose a lump-sum offer in compromise based on the overall tax debt owed and their current financial circumstances. The IRS frequently works with those who have significant tax debts, but not all offers in compromise are successful. What happens if the IRS rejects a proposed payment plan or lump-sum settlement?
Taxpayers can appeal
There are formal procedures taxpayers can follow with their attorneys. If the IRS does not approve their offer in compromise, they can formally appeal the decision if they act quickly. Taxpayers can appeal a rejection of their offer in compromise, but they must act quickly. They typically have just 30 days to submit an appeal request. The formal appeals process may lead to an additional review of the offer and could result in the IRS ultimately approving an offer in compromise that the organization previously rejected.
Taxpayers can negotiate or make new offers
The IRS generally wants taxpayers in arrears to commit as much of their disposable income and liquid assets to repaying their debts as possible. In some cases, it may be possible to rework the offer in compromise to make it more acceptable to the IRS. Especially in scenarios where taxpayers initially proposed an offer in compromise on their own behalf, sitting down to discuss the matter with an attorney can be helpful. Lawyers who have a history of handling income tax controversies may be able to identify the issues with an offer in compromise and help the taxpayer make a new offer.
Responding assertively when facing an income tax debt is of the utmost importance for those facing IRS tax disputes. A rejected offer in compromise can be frustrating, but it may simply be the beginning of a process of resolution of an outstanding federal income tax debt.