Thursday, January 3, 2008

Settling Tax Liabilities for Less than the Full Amount (the Offer In Compromise).

The law provides that a tax liability can be resolved for less than the full amount of the total debt. Sometimes, the tax debt can be resolved for a fraction of the total. This procedure is known as an Offer in Compromise. In the right circumstances, an Offer in Compromise can be used to get a person out of tight spot.

An Offer in Compromise is generally available to taxpayer in three circumstances 1) when the person or business cannot afford to pay (Doubt as to Collectability), 2) when the person or business may not be liable for the tax asserted (Doubt as to Liability), or 3) other special circumstances (Effective Tax Administration).

When a person cannot afford to pay a tax liability, they may be eligible to settle their debt on the basis of Doubt as to Collectability. Resolving the debt this way does not afford the taxpayer any substantial amount of privacy concerning their financial status, but is often well worth it. The taxpayer must prepare a financial statement outlining all of his or her assets and liabilities. After reviewing the financial statement, a reputable tax professional can help determine for how much the IRS will settle the debt.

A person can settle their debt for less than the full amount of the debt if there is a doubt as to their liability for the tax due. This is generally used to challenge whether the IRS’ calculation of the tax liability was correct.

A liability may also be resolved for less than the full amount of the tax if there are special circumstances that warrant a resolution of the debt. For the IRS to settle the debt on this basis, the IRS must be convinced that, in spite of the fact that a taxpayer can afford to pay a tax owed, other special circumstances exist to compromise the debt.

When faced with a large tax liability, an Offer in Compromise should be considered. While not available in all circumstances, when available, this procedure can lift a heavy weight from a person’s shoulders.

No comments: