Financial success is often a double-edged sword. It can provide you with a higher standard of living, but you will likely also incur substantially more expenses as well. Additionally, earning more money can mean that you have to pay more in taxes.
High earners may employ tax avoidance strategies to help reduce how much they have to pay. In some cases, those strategies may cross the line in to tax evasion, resulting in an unpaid tax debt. If the Internal Revenue Service (IRS) claims you haven’t paid the full amount of taxes that you owe, they can take legal action against you, prosecute you and even seize your property.
If you owe five or six figures in unpaid taxes, how do you even respond to such a large outstanding tax debt?
Review your finances to see what is possible
If the IRS has not made mistakes in their calculations of your owed taxes, you may need to look at your income and budget to see how you can repay that tax debt. In some cases, especially if your income is now lower than it was when you incurred the debt, repaying the full amount may not be realistic or could take decades based on your current income.
You may want to consider making an offer in compromise if you can’t reasonably expect to tackle your tax debt in the foreseeable future.
What is an offer in compromise?
When you make an offer in compromise, you recognize what the IRS says you owe and counter with an amount you could potentially pay them. In order for an offer in compromise to work, the IRS has to accept it. That generally means you will have to draft a compelling offer and provide financial evidence to back up what you claim you are able to pay.
The IRS may accept an offer in compromise if they feel the amount represents the most they can expect to regain in a reasonable amount of time. Drafting an offer in compromise and negotiating with the IRS are stressful activities that often require skilled legal assistance.