Q&A with David Stell
Compromises on tax bills available for some filers
Q: There are some TV advertisements that claim they can help their clients pay “pennies on the dollar” on their tax debts and promise the IRS will accept their offer. What are they talking about?
A: It appears such claims are based on a section of federal tax law that allows assessed taxes and additions to those taxes, such as accrued penalties and interest, to be settled for less than the full amount owed. This is known as an “offer-in-compromise.”
Q: What is an offer-in-compromise?
A: An offer-in-compromise is an agreement between the federal government and a taxpayer to accept a taxpayer's offer of less than the full amount owed. The offer can be accepted when the amount offered reasonably reflects the amount the government can potentially expect to collect from the taxpayer within a reasonable period of time.
Q: What qualifications must a taxpayer meet to qualify?
A: Once a taxpayer submits an offer-in-compromise, the IRS looks at the taxpayer's ability to pay, including income, expenses, and equity in assets, to make a determination of the taxpayer's reasonable collection potential. A taxpayer's offer is generally not accepted if the IRS believes the liability can be paid in full as a lump sum or through an installment payment agreement.
Q: Is there anything else taxpayers should know?
A: Despite what advertisements may claim, an offer-in-compromise is not for everyone. Taxpayers can apply for an offer-in-compromise themselves by completing and submitting IRS Form 656 and a financial information form, along with a $150 application fee. The application fee can be waived for those meeting low-income guidelines. If a taxpayer chooses to use a third party, such as a tax professional, to prepare and file an offer-in-compromise, it is important to choose carefully. The IRS offers eight tips (http://go.usa.gov/dg3) to help taxpayers make such a choice. Finally, the IRS recently announced more flexible terms for offers-in-compromise, which will enable some of the most financially distressed taxpayers to clear up their tax problems. More information can be found on the IRS website, irs.gov, by clicking on the Fresh Start tab in the middle of the home page.
PAULA BURKES, BUSINESS WRITER