Guide to Payment Plans and Offer in Compromise

Does the IRS offer a payment plan for taxes?

To some people, finding out they owe taxes can come as quite a shock especially when they discover that the IRS charges interest and penalties on the amount that is not paid by the due date. However, paying your taxes is important to the IRS so they are willing to work with you on different payment options to meet your obligation and avoid having a tax lien filed against you. Depending on the amount you owe, you may be able to make a lump sum payment and clear up your debt quickly. This will save you money since your interest and penalties will be lower. If you need more time, you can also request a short extension of up to 120 days to come up with the necessary funds. In circumstances where you just don’t have the money to pay, you can also request to make your payments through an installment plan. You will be charged interest on this as well as a user fee.

Setting up an IRS payment plan may cost a lot more than you anticipate since interest continues to accrue until the amount has been paid in full. Other options, like borrowing money from others or obtaining a bank loan may be cheaper and should be considered before exploring a payment plan with the IRS.

What is an offer in compromise?

When all other options to pay taxes have been explored, as a last resort the IRS may be willing to work with a business owner on an Offer in Compromise (OIC). With this option for repayment, you may actually be able to reduce your tax liability and get some business tax relief. However, this is taken seriously by the IRS and you have to show how repaying the full amount owed would be difficult for your business. To be considered for an OIC, you must submit an application with a $150 fee. In addition, a first payment for an installment payment plan needs to be included along with the offer for repayment or a 20 percent payment on a lump sum may also be required before the offer is considered.

For companies, the IRS also requires that they meet the compliance test before they will be considered. This means that during the quarter in which they apply and are investigated for OIC, the company must be current with all federal tax deposits or estimated tax payments.

Can I get an offer in compromise as an individual?

Owing the IRS can be a scary and intimidating situation especially if you just don’t have the means to pay the amount plus penalties and late fees. As an individual, you may be able to apply for an Offer in Compromise (OIC) to reduce the overall liability. There are strict guidelines that the IRS follows to determine eligibility. This is necessary so people don’t think they can get away without paying required taxes. One of the first guidelines is that you can not be involved in current bankruptcy proceedings. Other requirements include submitting an application, paying the fee, and submitting a payment with the lump sum offer. If this will be paid in installments, you must submit the full first payment along with the offer.

Can an innocent spouse seek tax debt relief?

In situations where one spouse takes responsibility for filing the annual federal tax return, the other may not be aware when an error (either intentional or unintentional) occurred. The IRS recognizes that this can happen and will consider spousal tax relief for the innocent party. Since married couples are jointly responsible for all debts, there are a number of steps that you must go through to prove the innocence of the one spouse. They will look at things like whether or not the couple is still married or if abuse occurred in the marriage. They will also look at the impact of the tax debt burden on the innocent spouse as well as ensure compliance on more current tax returns. If you think that you may qualify for innocent spouse tax relief, contact a tax expert for assistance in going through the process with the IRS.