What is an offer in compromise? Do I need it?
Sometimes we might find ourselves in sticky situations affecting our income and finance. With tax being an obligation, it could get devastating when unable to pay in trying times. The IRS provided a solution to this by introducing an offer in compromise. But when the pros and cons are weighed, is it really worth it? Do you need to go through this process or just look for alternative solutions? This article answers the burning questions you might have on offer in compromise.
Offer in compromise- What does it mean?
An offer in compromise is a program organized by the Internal Revenue Service (IRS) that allows taxpayers to pay less than their original tax amount. This program is put in place to protect people going through hardships with the inability to pay their full tax amount. This exonerates them from a penalty from the IRS. There are three main types of situations offer of compromise will be considered.
- Doubt as to liability: This is a dispute that comes into play when the taxpayer claims they do not owe what the IRS claim they do. This is followed by a detailed explanation by the taxpayer backing their claim.
- Doubt as to collectability: This occurs amid the inability of a taxpayer to pay their levy. This could be as a result of low income or no proper means to pay the debt.
- Economic hardship: A taxpayer could fall on hard times. Reduced income, the prevalence of more expenses, and financial struggles could make a person consider an offer in compromise.
Pros and Cons
An offer in compromise offers a good number of pros and cons respectively.
- Liberation from tax liens: If your tax debts are not settled, the IRS could seize your properties and assets. An offer in compromise can prevent that when your issue is brought up.
- Improved credit score: Reduced debt could have a positive effect on your credit score. You will not need to worry about the burdening amount that will adversely affect your credit score.
- Debt relief: An offer in compromise provides a taxpayer with the relief of their debt as tax paid is reduced.
- Probation: You will be put on probation for five years and be monitored. You must pay all taxes when due and must not owe anything or else the offer in compromise agreement can be terminated. To avoid mistakes in this situation, it is advised to use professional tax resolution agencies to help file your taxes.
- Thorough investigation: When you file for an offer in compromise, the IRS will do a distressful investigation on your work, bank, earnings, and taxes.
- Public record: If you like to keep your finance private, you probably won’t like this point. When you file for an offer in compromise, it could go on the public record and anyone can know your history with the program.
An offer in compromise can have a big impact on your finance in the long run. It is important to weigh all options and come to a conclusion profitable for you.