 Making
an offer in compromise
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 Dear
Tax Talk,
We have unpaid taxes for 2004 and 2005 due to my husband's job as an independent consultant. The company he worked for did not pay the taxes. He was responsible. I have been quite ill with a huge amount of medical bills that made it impossible to pay the taxes.
The IRS is demanding payment. Is there any relief
or "forgiveness" program with the IRS? We don't know how to handle
this. Do we go to a "tax help" company and let them help us? Do
they help anyone or is this a type of scam? Or can we get help from
the IRS directly? Please help! We don't know how to proceed.
-- Martha
 Dear
Martha,
When you owe, you owe. Although the Internal Revenue Service might
feel bad about your medical problems, it's in the business of collecting
the taxes you owe. You may be able to get into a payment arrangement
to pay the back taxes, but beware of too-low payments that will
not get you out of this debt in short order. In addition, if your
husband is continuing to work as an independent contractor, he'll
have to show that he is paying his taxes currently, as well as the
payment arrangement on the back taxes. If you can, you're better
off borrowing the money, such as with home equity or credit cards.
The only forgiveness program the IRS has is an offer
in compromise. This is basically for those who are in bad financial
shape. Generally, the IRS will look at your monthly income and your
basic living expenses, including future medical bills, but probably
not past bills. Once the IRS determines the monthly payment
amount you can afford, it generally accepts 50 times that amount to
compromise or settle the debt. But there is no guarantee they will
accept the offer if there are other means to collect the debt. In
addition, the offer will be voided if you do not pay and file your
taxes on a timely basis in the future.
You might be able to find a company on the Internet
that specializes in offers in compromise, but get references and
walk away if it overpromises.
To ask a question on Tax Talk, go to the "Ask
the Experts" page, and select "taxes" as the topic.
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