The two most common reasons my clients owe taxes are 1) early retirement withdrawals and 2) self employed person’s failure to save money for taxes. Owing the IRS can be stressful. The IRS will become increasingly aggressive as time goes on, and the IRS has collection powers beyond those of normal creditors.
In many cases, an offer in compromise is a good option to resolve the tax debt. This is especially true for people who have little other debts (little or no credit cards, medical bills, etc.). Essentially, an offer in compromise is an agreement with the IRS to settle the tax debt at a discount. The IRS will consider a settlement for three different reasons; 1) dispute over the amount of tax debt actually owed, 2) doubt whether the IRS would be able to forcibly collect the debt, and 3) convincing the IRS that paying the debt would be an economic hardship.
Like most things involving the federal government, the process is complicated and time consuming. Research suggests that the IRS accepts about 15% of all offers submitted, and it can take 6-9 months for the IRS to make a decision. While those statistics are discouraging, those figures include offers that people try to submit on their own without the assistance of counsel. It is important to hire a tax attorney who will ensure your offer is submitted properly the first time, which will significantly increase the chances of having your offer accepted.