Income tax debts are notorious for increasing rapidly. The Internal Revenue Service (IRS) doesn’t just collect the initial amount owed due to mistakes on an income tax return. Taxpayers face both interest and penalties that can add thousands of dollars to the final balance due. The interest continues accumulating until they pay what they owe in full.
Those who fall behind on their income taxes often fear the worst outcome, as they may not have enough income or personal resources to pay what they owe all at once. The IRS is notorious for taking aggressive actions to collect on past-due income tax debts.
Is it ever possible to convince the IRS to reduce an amount owed in unpaid income taxes?
Taxpayers can negotiate settlements
It is sometimes possible for taxpayers who have fallen into arrears to arrange to pay less than the full amount that they owe in federal income taxes, penalties and interest. They can propose an offer in compromise to the IRS outlining what they can pay.
Especially in scenarios where limited income or assets make paying the full amount an impossible goal, an offer in compromise can help a taxpayer regain control over their finances. Sometimes, taxpayers can make a lump-sum offer where they pay one fixed amount to resolve all of their income tax debt.
Other times, an offer in compromise involves a series of structured payments based on someone’s total tax debt, current income and other household expenses. Provided that the IRS accepts the offer in compromise and that the taxpayer makes good on their promises, they can potentially eliminate a portion of their tax debt while making a good-faith attempt to pay a reasonable amount of what they owe.
Attempting to negotiate an offer in compromise can be very difficult for individual taxpayers. Frequently, those facing income tax controversies need the support of a professional. A tax attorney can help an individual make sense of IRS letters. They can also assist with proposing an offer in compromise that the IRS is likely to accept when they face income tax collection efforts. Understanding the different ways to handle outstanding income tax debts can help people avoid ongoing financial hardship and reduce the risk of prosecution.
