There may be all sorts of reasons why someone is unable to pay all of his her taxes to the IRS.
After all, life is full of contingencies. Even with the best intentions, taxpayers may experience cash flow problems or some other issue that keeps them from coming up with all of the cash they need to pay Uncle Sam in a timely manner.
That is why it is important that these taxpayers know about the Offer in Compromise (OIC) program that the IRS operates. In this post, we will take note of some of the considerations involved in this program.
It's been a few months since we last discussed this topic. In our July 31 post, we noted that the IRS has made an online tool available for taxpayers to use in assessing their eligibility for an OIC.
In very basic terms, an OIC is a way to resolve tax debt without having to pay the full amount that the IRS originally sought from the taxpayer.
In recent years, the IRS has recognized the value of this program in addressing the issue of tax debt. For the IRS, it is an opportunity to bring in much-needed revenue to the U.S. Treasury without spinning its wheels trying to collect from taxpayers who are financially distressed.
If taxpayers simply don't have the ability to pay the entire tax debt, efforts to collect the full amount could be like trying to get the proverbial blood from a stone.
For taxpayers, there is value in reaching an agreement as well. It means a lot, not to have tax debt hanging over your head, causing anxiety and eating away at your emotional well-being. This is perhaps why the IRS has moved in the last few years to make the Offer in Compromise process more flexible, with fewer hoops to jump through.
Source: IRS.gov, "IRS Announces More Flexible Offer-in-Compromise Terms to Help a Greater Number of Struggling Taxpayers Make a Fresh Start," Accessed Jan. 31, 2014