Tax debts are notorious for inspiring financial hardship. The Internal Revenue Service (IRS) can be a very aggressive collection agency. People who underpay their federal income taxes or fail to file tax returns may end up owing substantial debts that amount to more than they make per year.
Particularly for those who no longer work or who have limited income, tax debt can seem like an insurmountable financial obligation. After all, penalties and interest typically continue accruing until they pay what they owe in full.
Some people despair of ever regaining control of their finances once they fall behind on their income taxes. Others may start looking for solutions to their financial hardship. There are companies that advertise tax debt settlements. Is it theoretically possible to settle tax debt for less than the full amount owed?
The IRS does sometimes compromise
It is occasionally possible to settle an existing tax debt for less than the full amount of the initial debt combined with the interest and penalties that the IRS has assessed. That being said, many of the companies that advertise tax settlement services are actually lenders. Their goal is to get an individual to take out a loan with the company to pay the IRS. Such organizations may not be the best advocates for those already struggling with their finances.
People may instead need help approaching the IRS directly. An attorney can help those dealing with tax debts, tax fraud allegations or an upcoming audit. Lawyers may be able to help those dealing with tax debts propose an effective offer in compromise.
An offer in compromise is essentially a tax debt settlement. The taxpayer proposes either a lump-sum payment based on the resources they have on hand or a repayment plan with a set number of monthly payments. Factors including the total amount of the tax debt, the origins of the debt and the current financial circumstances of the taxpayer can influence how flexible the IRS is regarding the debt.
Negotiating an offer in compromise can make a major difference for those worried about aggressive tax collection efforts. Those hoping to reduce what they owe in federal income tax debts may need help understanding what kinds of arrangements the IRS might view as reasonable and may require support while communicating with the IRS, and that’s okay.