Q I owe back taxes to the IRS and can’t afford to repay the debt. What can I do?

 

A  First, if you ever receive a certified letter from the IRS, that’s never a good sign, so open it immediately! Then take action and seek guidance from an accountant who knows how the process works.

If you think you can play the audit roulette game, hoping the IRS will never catch up to you, your thought process is flawed. It’s true that cutbacks have resulted in fewer IRS enforcement officers with too many cases on their plates. No professional on earth can predict when your ticket will be pulled and the certified letters will start arriving. But they will find you eventually.

If you have a large tax debt that you cannot pay in full, you may want to consider an Offer in Compromise (OIC). An OIC offer is a request to settle tax debt for less than the total amount due. It may be your best option if you cannot pay your full tax liability or if paying the full amount would cause you and your business serious financial hardship.

An OIC is not for everyone and has strict eligibility requirements. You should be prepared to describe your financial situation in detail on the OIC application. The IRS will evaluate your income, assets, expenses and future earning potential. You will have to make a suitable offer based on your “true ability to pay.” Additionally, you must be up to date with all of your other tax filing and payment requirements. Taxpayers who are involved in an open bankruptcy proceeding do not qualify.

There’s no guarantee the IRS will accept your OIC offer. But it will generally approve an OIC if the amount you offer is the most they can expect to collect within a reasonable time frame. On the other hand, your offer will likely be denied if you’re able to pay your full tax debt through an installment agreement or lump sum.