We’ve talked about what to do with your tax refund , but many of us actually owe the IRS money. For some folks, this amount might be much higher than expected. If you can’t afford to pay your tax bill, you might qualify for an “Offer in Compromise.”
GOBankingRates points out that, in some cases, you can actually settle a smaller amount or set up a repayment plan with the IRS. This is called an “Offer in Compromise,” (OIC) and legal site Nolo points out that the IRS approves about 25 percent of OICs submitted.
Of course, this option is for those who truly can’t afford their bill. You have to prove economic hardship from exceptional circumstances. According to the IRS:
An offer in compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can’t pay your full tax liability, or doing so creates a financial hardship. We consider your unique set of facts and circumstances:
- Ability to pay;
- Expenses; and
- Asset equity.
On their website, the IRS actually has a pre-qualifier tool. It will tell you if you’re likely to qualify, and, if so, how much you should offer to pay.
From there, you’d fill out Form 656 and pay a $186 application fee. Be prepared to fork over a lot of receipts, records, and paperwork, too. If accepted, your OIC will be on public record, but it won’t affect your credit score (if you had a tax lien, that’s another story ).
Check out the IRS page for more detail. And see GoBankingRates’ full post for other repayment options if you can’t afford your tax bill.
Offer in Compromise | IRS via GoBankingRates
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