If you owe taxes but you’re underemployed or unemployed, tax debts can be settled for less than the amount owed. Believe it or not, the IRS does realize that there are some circumstances wherein a person should not be held liable for some tax debts. Keep in mind, though, that tax settlement can only be considered if the taxpayer doesn’t have the means to pay.
Here are 2 options for reducing the amount of your tax liability.
Offer in compromise
The IRS may grant an offer in compromise if collection of taxes would cause you financial hardships, if there is doubt that the amount owed is correct or if they think the person has no capability to pay the full amount of tax owed.
Of course, you have to be able to prove that you can’t pay the full amount. Here, you will need to make an offer to the IRS and convince them that the amount of money you’re offering is equal to or greater than the amount they can collect from the sales of your assets such as automobiles, real estate properties, investments etc.
You also need to pay a $150 application fee to request an OIC. That payment will go to the tax debt if the application is not approved.
Partial payment installment agreement
If you can’t pay your taxes in full, but you will likely have the money to pay it in the future, you can negotiate for an installment payment plan. Here, you’ll make regular monthly payment to the IRS over a certain period of time, but this amount will be less than what you owe. A portion of your debt is forgiven after the terms of the installment agreement are fulfilled.
The monthly payment is typically based on what you can afford after taking into account your living expenses. This can be easier and less time-consuming than requesting for an OIC.