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Back Taxes Help: What Is an Offer in Compromise and What Does It Mean for My Tax Debt?

06th April 2011
By Rebecca Paul in Taxes
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Back taxes can be a huge weight over your head. However, there are ways to get back tax relief, including an offer in compromise. Here we explore what an offer in compromise is and how it can help with your state or IRS back taxes.

Do you owe back taxes? Are you at your wit's end trying to figure out how to resolve your tax debt? Then keep reading! An offer in compromise may be just what you need.

An offer in compromise is an effective way to eliminate back taxes under a number of different situations. This option enables a taxpayer to negotiate with the tax authorities to reduce the total of the debt owed. In short, offers in compromise allow you to fully resolve your state or IRS back taxes without having to pay the total back tax, penalties, and interest you owe. The tax authorities will settle your debt for less than full payment.

Now you may be wondering why on earth they would do that. Well, for starters, the IRS only accepts offers in compromise under certain circumstances. These include:

  • Doubt regarding liability. In these cases, there is some question about whether the taxpayer is responsible for the taxes owed.

  • Doubt regarding collectibility. In these cases, there is some question whether the taxpayer will ever be able to pay back the total taxes and fees owed, typically based on the taxpayer's income and assets compared to the amount of the tax debt.

  • Exceptional circumstances. In these cases, the taxpayer does not qualify for either of the other forms of offers in compromise, but the IRS rules that it would create economic hardship for the taxpayer. Some situations where this may apply can include families with special needs children, high medical bills, etc.

When the IRS does accept an offer in compromise, it's because they are acting under the belief that some is better than nothing. That is, they realize that they are unlikely to see the full amount of money owed to them, so they accept the offer in compromise to see repayment on at least part of the tax debt.

It is possible to file an offer in compromise without the help of a tax attorney, but you may be better off utilizing the services of a professional. Offers in compromise involve some complicated tax codes and rules, and you need to make sure you have the appropriate evidence assembled to support your claims. Utilizing the services of an accounting firm or tax lawyer can help make certain that your offer in compromise is filed correctly to ensure the greatest chances of acceptance by the IRS. However, a tax attorney is not required to complete this type of back tax relief filing, so if you want to tackle the complex paperwork yourself, you should be able to submit your claim yourself.

When you owe back taxes, it can feel like the problems will never end, but there is something you can do about eliminating your tax debts. An offer in compromise is one option, depending on your circumstances, that can provide you with back tax relief. If an offer in compromise isn't right for your situation, though, don't despair. There are numerous other back taxes help strategies that may apply. Contact your local CPAs for more information or visit the Internal Revenue Service's Web site at:

Rebecca Paul is an Internet marketer for Prospect Genius, specializing in affordable SEO for local businesses.
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