Background

• Individuals owing money to the IRS fall into two primary categories. First, you can owe unpaid tax. These funds are actual unpaid income tax resulting from underpayment of your liability. Second, the IRS can penalize you for underpayment, which results in civil penalties and interest. Civil penalties include failure to file, underpayment of tax liabilities, under-reporting income. Alongside your civil penalties, interest accrues on the assessment as well.
  
  

Abatement

• If you owe assessed civil penalties or interest, you can request abatement using IRS form 843. In this case, abatement is the process or removing penalties, interest or any other kind of assessment from the IRS. Form 843 allows you to request abatement of penalties, interest or other additions to your tax using one of three primary acceptable reasons: reasonable circumstances kept you from preventing the issue resulting in the assessment, the assessment was due to an IRS delay or error or the error resulted from erroneous IRS advice. Recurring filing and payment issues reduce the likelihood of successful abatement.
  
  

Offer in Compromise

• Attorneys and other licensed tax professionals market an IRS settlement option known as an offer in compromise (OIC). You have surely seen the advertisements on television about settling hundreds of thousands of tax debt for a fraction of the total. The actual process of obtaining an approved offer in compromise is much more complex and time consuming than you are lead to believe. In addition, you must be willing to disclose your financial position to the IRS, which must prove your hardship for IRS approval.
  
  

Application Process

• You must apply for an OIC, which begins with filling out the offer in compromise application, form 656. The application includes your personal data, the periods and tax types you are applying for, the reason for the offer, offered terms and taxpayer and taxpayer representatives authorized signatures. Along with your application, you will be required to complete a collection information statement, which details your financial condition. You are required to pay a minimum fee of $150, although you may also be required to pay as much as 20 percent of the offer, depending on the offer terms you choose.
  
  Although you may be behind in your taxes, the IRS will not consider an OIC until you have filed all your tax returns, even though you may have balances due and still apply. If you are current, you must also complete all portions of the application and include the proper collection information statement along with your application fee and your lump sum or periodic payment. The IRS will not process incomplete applications. Lastly, contemplate your offer amount and terms before hastily choosing the lowest offer, because offers not deemed reasonable are not accepted.