When you have an IRS balance, you may be tempted to throw away the mail and ignore the problem, hoping that it will just go away. Unfortunately, that will only make things worse. The IRS adds interest and penalties to your balance, and the interest is compounded daily. In many cases, the interest can grow to be larger than the original balance. What can you do to settle your IRS bill for as little as possible?
First, you need to ascertain what you owe the IRS, or what the IRS thinks you owe. Next, you need to make sure you get in Compliance by ensuring that you will not owe again in the future. The IRS will not work with you if you have not corrected the problem that caused you to owe taxes in the first place.
Once you have stoped the bleeding and know what periods and amounts you owe, now you're ready for a plan. There are several options available depending on your circumstances. While everyone wants to pay "pennies on the dollar," you may not be eligible for that type of settlement.
An Offer in Compromise is an acknowledgement from the IRS that you will not be able to pay your balance in full before the Statute of Limitations expires. You may be approved for an Offer in Compromise based on a current financial hardship that is not reasonably expected to be resolved in the near future. In addition to being in Compliance, the IRS will look at:
It takes several months to a couple of years for an Offer to be approved. If you do not qualify, and the Offer is rejected, then you will owe interest for the entire time that the Offer was pending. It is not wise to file for an Offer unless you have a reasonable expectation of success, as there are other options available.