Because of the economy over the last five years, you may be asking yourself what your options are for personal tax debt. Many people that have personal tax debt seem to gravitate towards the Offer in Compromise, which has been referred to as settling for pennies on the dollar. Who would pass up the opportunity to settle with the IRS for pennies on the dollar. The unfortunate part about the Offer in Compromise is that it is few and far between. It may work for some people, but not for everyone that has personal tax debt. Fortunately, the IRS does have some other options to settle back taxes owed.
Some taxpayers think about using the Installment Agreement for personal tax debt, especially so because it seems to be the best option for many reasons. It shows the IRS the taxpayers willingness to cooperate for the long term while reducing phone calls and letters from the IRS in the short term.
Another option to reduce personal tax debt that is often overlooked is filing a return past the deadline date where none was ever filed or an amended return. Often times a taxpayer can lower their liability by amending their tax return if their liability on their original tax return was overstated. Likewise, a taxpayer that does not file a tax return, the IRS could file a substitute for return, giving the taxpayer only the minimum deductions and exemptions. This would not be in the taxpayer’s best interest as it could leave several dollars on the table.
As stated above the Offer in Compromise seems to get the most attention, but remember, if it seems too good to be true, it usually is. However, with the right situation, the Offer in Compromise can be the best option for those with personal tax debt.