People filing their annual income tax returns often expect to receive a refund. It is common for employers to withhold more than is actually necessary to cover state and federal income tax obligations. Many people look forward to receiving their refunds and may intend to use the money returned to them by the Internal Revenue Service (IRS) to pay down their credit card balances or make a large purchase that they might otherwise need to delay.
Some people, including those who had unexpected windfalls and those who work as self-employed professionals, may find that they actually owe taxes when they file their annual income tax returns. Particularly when someone owes a large amount in taxes because of good financial fortune, they may not have the resources on hand to pay their taxes due in full.
Is it ever possible to address income tax obligations without paying the entire balance owed?
The IRS does accept offers in compromise
The unpaid income tax balance that someone owes can grow rapidly. The IRS assesses penalties and fees for those who have failed to pay their taxes in full. The IRS also collects interest on unpaid income tax obligations. A past-due tax balance that is already high enough to strain someone’s finances could become an insurmountable issue once the IRS starts adding interest and penalties.
Thankfully, those dealing with large tax debts can potentially propose an offer in compromise. That process involves suggesting either a lump-sum settlement based on the resources that a taxpayer currently has at their disposal or a payment plan based on their current income.
The IRS may accept and approve an offer in compromise or may reject it depending on the amount owed and how significant the concessions are. Those who successfully propose an offer in compromise can eliminate their tax debts and reduce the risk of criminal charges related to their unmet tax applications. Even a payment plan can be beneficial for those worried about an ever-growing income tax debt.
Having assistance when putting together an offer in compromise can make a major difference for a taxpayer who owes more in past-due income taxes than they can pay in full. Taxpayers who proactively respond to tax controversies can reduce the legal and financial impact that their tax issues may inspire.