Texas taxpayers sometimes run into trouble meeting their obligations. When someone owes the Internal Revenue Service a substantial amount of money for back taxes, concerns might arise about paying the debt. An installment agreement might work when dealing with a manageable amount. However, a tax balance might be so significant that paying the full amount proves next to impossible. When dealing with such a situation, it may be necessary to explore an offer-in-compromise agreement.

Understanding an offer-in-compromise

Perhaps someone did not file tax returns for several years and now owes far more money than he or she can pay. Maybe someone’s fiscal situation changes dramatically due to unemployment or other financial struggles. Such individuals might find an offer-in-compromise helpful since it provides a way to make a binding settlement.

For example, the tax debt might be $10,000, so the taxpayer offers to pay $5,000 through an offer-in-compromise. If the IRS accepts the deal, the taxpayer would either pay the full $5,000 right away or make installment payments toward that amount. Upon paying the settlement, the taxpayer would no longer face any collection action.

Of course, the IRS expects to see proof that someone cannot pay the amount owed. Financial and disclosure evidence are necessary to process a settlement request.

Other circumstances for an offer-in-compromise

Annual income is not the only thing the IRS examines. Financial disclosures may include statements about other liquid assets, such as stocks and bonds. The IRS would likely deny an offer-in-compromise request if it turns out that the taxpayer could pay the debt by liquidating assets, providing doing so would not result in undue financial hardships.

Not everyone may be eligible for such a deal. People in bankruptcy, for example, do not qualify. Other collection alternatives, such as standard installment agreements, might be viable options.

An attorney may advise a taxpayer wondering about offer-in-compromises. The attorney might also represent the client to the IRS and in tax court.