This blog post is the first of several that will explore what options you might want to pursue concerning tax issues.
So the IRS is after you for unpaid taxes, what should you do? The important thing to note is that you do have options and you should attempt to pursue those options as soon as possible after receiving notice from the IRS. Depending on your specific circumstances you may be eligible for an Offer in Compromise or OIC. With an OIC, you may be able negotiate a much lower payment of the amount the IRS says you owe. Once you reach an agreement with the IRS on an OIC and once the agreed amount is paid off, the initial liability to the IRS is completely discharged.
The IRS uses a rather complicated set of criteria to determine who is eligible for and the amount it would be willing to accept on an OIC. In most cases, the IRS will not accept an offer unless the amount offered by the taxpayer is equal to or greater than the reasonable collection potential (the RCP). The RCP is how the IRS measures the taxpayer's ability to pay. The RCP includes the value that can be realized from the taxpayer's assets, such as real property, automobiles, bank accounts, other property and anticipated future income, less certain amounts allowed for basic living expenses.
Generally, you must submit a $150 application fee along with the Form 656. This fee can be waived, however, if the offer is based on doubt as to liability or if you qualify for the low-income exception.
The IRS website discussing Offers in Compromise can be found at: http://www.irs.gov/taxtopics/tc204.html
