Michael Rozbruch, certified Tax Resolution Specialist, answers a question about settling back taxes:
Question: Do I have the choice between the Offer in Compromise and the Installment Agreement when working with the IRS to settle my tax debt? And which one is better?
Answer: Great questions! The short answer for both is that each is intended for consumers in different positions, so the decision of whether to pursue an Offer in Compromise or an Installment Agreement needs to be based on your specific financial and tax situations. I think it would help if I explain each program and how they are catered to taxpayers in different situations.
The IRS developed the Offer in Compromise after realizing that knocking on taxpayers’ doors isn’t always the most effective way of collecting outstanding tax debt. In some cases, as the IRS discovered, no matter how many times you knock, you’ll never collect anything on the tax debt because the consumer simply doesn’t have the money to pay.
Enter the Offer in Compromise. In situations where the person is unable to pay the tax debt, even over time, the IRS agrees to accept a one-time settlement offer that will eliminate the tax debt. For the IRS, collecting something is better than nothing. For the indebted taxpayers, the Offer in Compromise can reduce the tax debt by a significant amount! However, to qualify for the Offer in Compromise, you must be able to prove need — that you cannot pay off the debt, even over time. Your qualified tax professional will help you make this determination.
Alternatively, if you cannot pay off your tax debt tomorrow but do have the capacity to pay it off over time, the Installment Agreement creates a framework for you to make small, manageable monthly payments that over time will eliminate your tax debt. Again, your qualified tax professional can determine if you qualify for this program.
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Michael Rozbruch is an IRS problem solver. For a free, no-risk tax relief consultation, please call his office at (888) 699-7630.
More Tax Help, IRS News and Tax Relief Tips:
- Got Back Taxes? The IRS Payment Plan or Installment Agreement Can Help
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- IRS Question Corner: How Do I Pay Off Back Tax Debt?
- Unable to Pay Your Tax Debt? The IRS Offer in Compromise Program May Solve Your Tax Debt Problem
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