You have just learned that you do, in fact, owe the Internal Revenue Service thousands of dollars. You received a letter pointing out a discrepancy, and you went back through the return and all of your tax records for that year. When you realized that the IRS was right, you got that tight feeling in your chest, or a headache took hold or you; you may even have blacked out.
There is no way you can repay the money all at once without selling your house or winning the lottery. What you may not realize is that there could be a couple of different avenues open to you. When you sit down with Minneapolis tax attorney Mark A. Pridgeon, he will explain how offers in compromise and installment agreements work.
With an offer in compromise, the IRS will reduce your obligation, but only if you qualify. The agency looks at your financial situation -- assets and liabilities, income and expenses -- and applies its own formula. If you do qualify, you must file and pay your taxes on time for the next five years. You must also file and pay estimates or withholding taxes on time for the y ear in which you accept the OIC. If you fall behind on either of these, your account will be in default, and that means you owe the entire amount, not the discounted amount granted in the OIC.
An installment payment plan is a little more complicated. We'll explain in our next post.