·         Try and manage their current debt themselves – in other words tighten their belt and spending habits.

·         Debt consolidation loan – this would combine all outstanding unsecured debt into a single payment loan. The problem is can the consumer qualify for a new loan with no job or financial hardship issue.

·         Refinance or Home Equity loan – This might work, if the consumer has enough equity in their home, however the repayment may be an issue.

·         Credit counseling service – This program acts like a debt consolidation loan. The consumer pays a third party company who in turns pays a small or set percent each month to the lenders until all the balances are pay off. In addition, there is credit counseling for the debtor and this will also have an affect on your credit score.

·         Bankruptcy – This is the most serious and the final step that a consumer should consider.  The consumer needs to discuss with an attorney all facets of bankruptcy since it will cover all debts, both secured and unsecured.

·         Debt settlement – This is a program by which a third party negotiates with the lender in order to reduce the outstanding balances on unsecured credit cards.

Recently I got a letter in the mail from the IRS stating that they wanted $21,000 in back taxes.  I thought I was going to loose my mind.  When I got to the heart of the matter I found out that my IRA rollover was not reported correctly.  I thought that is going to take forever to get straight with the tax man.  All it took was a phone call to explain the problem.  The woman I spoke with at the IRS just said not to worry about it and she would send out a letter to fix it.  That was it.  You do not need to fear the IRS they want to get it right and they do not really want to give you a hard time either.

It just goes to show you that 99% of what you worry about never happens.

You may have seen the commercials on the tv and where curious as to what exactly is an Offer in Compromise? If you are unable to pay your income taxes in full and an installment plan wont work, a person may be able to do an offer in compromise. An offer in compromise is looked at as a last resort option after a taxpayer has exhausted all other options. The reality is that the IRS only resolves less than one percent of all tax bills owed through this type of method. The TV commercials make it seem like you can just pick it right off the shelf and get it done. The reality is that your chances of being able to work this option out with the Internal Revenue Service is remote.

What is an offer in compramise?

What is an offer in compromise from the IRS? It is an agreement between the IRS and a taxpayer that completes the taxpayers tax bill. The IRS has the authority to settle or compromise a federal tax bill by taking less than what was originally requested. This will only be allowed under certain conditions. An IRS tax bill can be compromised for the following reasons:

Can I negotiate my income taxes?

1. Doubt as to liability, There must be doubt that the tax bill has been assessed correctly. The Internal Revenue Service can make mistakes and may be unclear as to what a tax position is for a taxpayer. In this case they will look at the possibility of lowering the amount that you will need to pay.

2. Doubt as to collectibility, Will the taxpayer ever be able to pay the tax bill in their lifetime, the Internal Revenue Service will consider settling the tax bill for less. Even if you get an offer in compromise, you may still have a large bill on your hands to pay back.

What is effective tax administration?

Effective Tax Administration, When the IRS has no doubt that the tax is correct and could be collected, but there is an extraordinary circumstance that allows the IRS to consider an offer in compromise. To be considered for a compromise on this basis, the taxpayer must demonstrate that collection of the income tax would create a financial burden or would be inequitable or unfair.

What is a Form 656?

If the offer in compromise is approved, the IRS will give you a revised Form 656, which is a revision on what your taxes are that you will have to pay back. A taxpayer could also get a Form 656 – L, which would declare that there is some doubt to the liability when it is believed that the tax liability is actually correct. A taxpayer is can’t file offers at the same time for claiming that both the tax liability is incorrect along with no ability to ever be able pay it off.

Can I do an offer in compromise on two concurrent years?

Form 656 also includes changes in the guidelines as the IRS will no longer investigate an offer for a tax year or tax period that has not yet been assessed. The IRS will return the offer back to the taxpayer if it is turned in solely for a tax period that has been unassesed.

This information is designed to be of general interest and should not be considered legal advice. The specific information discussed may not apply to you. Before acting on any matter contained herein, you should consult with your personal legal adviser or attorney.