Some people don’t file income tax returns because they know that they probably owe money to the government. They might assume that there won’t be any consequences provided that they keep sending in taxes with each paycheck that they receive. It may be only after multiple years when the balance has reached tens of thousands of dollars that they understand the scope of the issue they face.
Other times, people may have filed tax returns but could have made mistakes when calculating what they owed. They may realize the issue but not know how to protect themselves from prosecution and massive financial losses. The Internal Revenue Service (IRS) can seek someone’s prosecution, place a lien against their property and charge them huge amounts of money as interest.
Those who know that they have fallen behind on income taxes don’t have to wait for the IRS to come knocking at their door. They can take the lead in the situation and potentially minimize the challenges they might otherwise face. How can someone proactively resolve a significant outstanding tax debt?
They can make an offer in compromise
The IRS reviews income tax returns and financial statements made by businesses to determine the tax liabilities for individuals and organizations in the United States. In cases where people underpay or do not pay their taxes, the IRS has the authority to engage in enforcement activities, which it typically will do as soon as it discovers tax evasion or a past-due balance owed by an individual taxpayer.
Individuals, including business owners, with large tax debts may worry that they can never reasonably pay off that debt in full, especially when factoring in penalties and interest charges. An offer in compromise could allow someone to pay less than the full amount that they owe while still protecting themselves from future penalties.
Proposing and offering compromise can be a challenging process. Solutions can include lump-sum payments or a structured payment plan. The amount offered needs to be reasonable based both on someone’s current financial circumstances and the estimated tax debt. There may also be a negotiation process with the IRS.
Having the right legal support can make all the difference for those hoping to minimize tax liabilities by proactively addressing their outstanding income tax debt by submitting an offer in compromise.