My last post dealt with two ways of dealing with tax debts: 1) immediately pay in full or 2) discharge the tax debt in bankruptcy. This post deals with two more approaches: 3) enter an Offer In Compromise or 4) enter an Installment Agreement:
3. Enter An Offer In Compromise
An offer in compromise (generally referred to in the IRS literature either as “compromise,” or as “OIC,” though I have had some agents call it an “offer”) is a way to reduce your tax debt and pay the reduced amount over a twenty-four month period. An OIC is similar in spirit to a bankruptcy, but you resolve only your tax liability: None of your other debts are addressed. However, if you have other debts, the payments you make on them can help lower the amount you end up paying to the IRS (for linguistic simplicity I’ll stick with the IRS, but many other taxing authorities have similar ― but not identical ― OIC programs).
There are three grounds under which the IRS will accept an OIC: (a) doubt as to liability; (b) doubt as to collectability; and (c) effective tax administration. Here is the way the IRS describes these three grounds.
Continue Reading Dealing With Tax Debts: Part 2