The simple answer to the question in title of this blog is "maybe". Why do I say that?
The IRS provides a lifeline for those who either cannot pay or who doubt they actually owe the tax through the Offer in Compromise (OIC)
program, governed by Section 7122 of the Internal Revenue Code. This
program allows taxpayers to settle their tax liabilities for less than
the full amount owed for those who qualify. Taxpayers have to be patient as this process can take at least a year to complete.
To qualify for an OIC a taxpayer must calculate their RCP using guidelines provided by the IRS that include both actual expenses and nation standards. Once RCP is calculated the determination is made whether a taxpayer qualifies for the OIC or has to set up an installment agreement and full pay.
I recently completed a case that took over a year for the IRS to send us the OIC acceptance letter. The taxpayer was unable to pay the tax in full after calculating the RCP. This was a doubt as to collectibility offer. We were able to settle an $80,000 plus debt for $100. The taxpayer has two responsibilites now: 1) To make the $100 payment and 2) Stay tax compliant for the next five years, including making estimated tax payments if required. If these two conditions are not met, the taxpayer can become liable once again for $80,000 tax debt.
We cannot settle every case for such a small amount. Each taxpayer's facts and circumstances are unique. Only a full analysis of your situation can determine what the best course of action will be. Using a local Enrolled Agent(EA), CPA, or tax attorney who will complete such an analysis is highly recommended.
Section 7122 on Offer in Compromise is a valuable tool for taxpayers in distress. However, this path requires careful preparation and a clear understanding of the obligations involved. Consulting with a tax professional can enhance the chances of a successful application.
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Colorado Springs, CO 80903
(719) 359-8789
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