It can feel a little overwhelming when you owe the Internal Revenue Service (IRS) or the North Carolina Department of Revenue (NCDOR) money. The IRS is one of the few entities to have inordinate power to reclaim funds owed, including placing a lien on your bank accounts, home, and businesses.
You may find that they’ve garnished your wages, reducing your paycheck. They can also seize items of value, sell them, and use the proceeds to pay off your debt. Yes, there is good reason to worry when you owe money to the IRS. However, an offer in compromise might help you settle the debt. This guide can help you understand your options.
What is an Offer in Compromise?
With an offer in compromise, you’re able to settle your tax debt by paying a lower amount than you owe. The IRS accepts an offer in compromise when it’s an amount that they can reasonably expect to recoup over a reasonable amount of time even though it isn’t the full amount.
When deciding whether to accept an offer in compromise, the IRS and NCDOR consider several things about your unique circumstances, including:
- Living and other expenses
- Equity available in assets
- Ability to pay the amount owed
If you qualify for an offer in compromise, you can lower your tax bill and get out of debt. There are a few basic requirements to even begin to be considered eligible. These include:
- You can’t currently be in bankruptcy.
- You need to have filed all of your most recent tax returns.
- You need to have made some estimated tax payments.
- If you’ve filed for an extension for the current year’s tax return, it isn’t considered.
When you file an offer in compromise, it’s important to have a tax attorney on your side to help you navigate the procedure. The application requires a fee to process and might require a payment on your current debt. Here’s a look at the most commonly asked questions:
If the IRS accepts my offer in compromise, do I need to pay back all the money at one time?
No, the IRS will accept either a lump sum or monthly payments. However, if you opt for monthly payments, make sure you don’t miss any. When the NCDOR accepts an offer in compromise, you must pay the full amount minus any payment you made with the application within 30 days.
While the offer in compromise is considered, will interest continue to accrue on my account?
Yes, both the IRS and NCDOR debts will continue to accrue interest while your offer is considered.
How much money should I offer? Is there a percentage or formula?
No, there isn’t a set percentage or formula that the IRS and NCDOR use to determine if the offer is reasonable. You need to determine how much you can afford to pay based on your income, assets, and expenses. If the offer is too low and gets denied, you can always reapply with a larger offer.
What happens if my offer in compromise is declined?
If you filed the offer in compromise with the IRS, you have 30 days to appeal the decision. You can even file an application for a new offer in compromise. The NCDOR doesn’t offer an appeals process, and the decision is final. However, the NCDOR can make a counter offer that you can either accept or reject.
An offer in compromise is a legal way to lower your debt to the IRS and the NCDOR, so you can repay it and escape any liens placed on your property. It’s a complicated application process, and you’ll need to provide financial documentation.
If you have questions about the offer in compromise process, contact our North Carolina tax attorneys today – call us at 919-787-7711 or fill out our online contact form to schedule a consultation with our team.