Question: I never thought it would come to this: I owe the Internal Revenue Service $85,000 in back taxes and penalties, according to my accountant. It was a stupid gamble: I delayed paying taxes, hoping that my business would take off. It made money (hence the taxes owed) but never like I thought it would. I closed shop four months ago, I have a kid in college, $20,000 in my bank account, and no way to pay my tax debt. What can I do?
Answer: I’ve had a number of clients with problems such as yours walk through my door. For whatever reason, some taxpayers think they can delay paying back taxes, waiting for sunnier days when they won’t need the money quite as much. In their cases, as in yours, that sunny day never came.
But it’s not all doom and gloom. As an American taxpayer, you have rights and options. That’s part of what I do: present to you your best options and then help you execute them. In your situation, you likely have two options: an Offer in Compromise and an Installment Agreement.
If you can prove to the government that you lack the means — and will lack the means for years to come — to pay your tax debt, you might qualify for an Offer in Compromise. In this program, you offer the IRS a settlement amount (sometimes pennies on the dollar!) that will make your debt go away once and for all. The IRS offers this program as a way to settle debts without having to chase taxpayers around the country year after year.
The other option is an Installment Agreement. If you do not have the ability to pay the debt now but will have the ability to pay over time, then you can enroll in this option. It will allow you make small monthly payments that over time will finally eliminate your tax debt. These payments are similar in size to a car payment, and although they will eventually satisfy your debt, they likely will not disrupt your present lifestyle.