If You Owe Back Taxes, Try Making the I.R.S. an Offer
People who demonstrate that their tax bills cannot be collected must show that they are, to put it gently, financially challenged. To receive such an agreement, the taxpayer must acknowledge a tax liability and demonstrate an inability to pay all of it, saying, in proper bureaucratic form, “Look, you can’t get blood from a stone.”
The I.R.S. does not break down offers by type, according to Anthony Young, a spokesman. Don’t count on having your offer accepted. But when the I.R.S. does agree to it, it may amount to “the deal of a lifetime,” says Todd S. Unger, a tax lawyer in Mount Laurel, N.J.
In a similar vein, Sarah Knight, a tax accountant in the Denver office of CBIZ MHM, a business services company, says when clients’ offers are accepted, “we get the monkey off their backs.” But the hoops the I.R.S. sometimes makes applicants jump through can still be “painful,” she added, and the process can take time, because the agency has up to two years to decide whether to accept an offer.
“When the process takes 12, 18, 24 months for a relatively straightforward offer, it’s challenging,” she said.
If the agency does not meet that 24-month deadline, the offer is deemed accepted. Until then, the I.R.S. can look at whether a taxpayer’s ability to pay has improved since the offer was made, Ms. Knight added.
Sarah Knight, a tax accountant in Denver, says the hoops the I.R.S. sometimes makes applicants jump through can be painful. Credit Brad Torchia for The New York Times
The easing of agency criteria for such offers has come in the last few years. In 2012, the I.R.S. changed the way it calculated how much income has to go to repayment. Last year, the formula for figuring the worth of assets — which must also go toward a payment of back taxes — was liberalized.
“There’s probably never been a better time” to make such an offer, Mr. Unger said. He said he saw reasonable offers, particularly ones in which the government was forgiving less than $50,000, being accepted “pretty consistently.”
The I.R.S. does not offer a golden formula that pegs a successful offer to a percentage of assets or income, but says in its booklet, “Offer in Compromise ,” that “the ultimate goal is a compromise that suits the best interest of both the taxpayer and the I.R.S.”