Finding out that the IRS is pursuing a tax debt against you can be scary and overwhelming. The size and power of the IRS versus you and your family might seem like an unfair fight, regardless of the circumstances.
Fortunately, the IRS is often willing to negotiate instead of taking you to court over allegedly unpaid taxes. A negotiated settlement is called an offer in compromise, or OIC. For a taxpayer to qualify for a potential OIC, the following must be true:
- The taxpayer must have filed all their tax returns.
- The IRS must have sent them a bill for at least one tax debt included in the OIC.
- The taxpayer must have made all estimated tax payments for the current year.
- If the taxpayer is a business with employees, it must have made all required federal tax deposits for the current quarter and the previous two.
As the IRS explains on its website, it can accept an OIC based on one of three factors:
- Doubt as to liability, meaning a genuine dispute over whether the taxpayer has a tax debt or how large that debt is.
- Doubt as to collectibility, or cases where the taxpayer’s income and total assets add up to less than the total debt.
- Effective tax administration, which means there are no questions about the debt or its collectibility, but having to pay in full would create a financial hardship, or else would be unfair because of exceptional circumstances.
While you can negotiate a compromise on your own, working with an attorney can be a huge help. An experienced tax lawyer who knows the law thoroughly and how the IRS operates generally can negotiate a better OIC than the typical taxpayer representing themselves.