Pete,

I owe about $35,000 in back income taxes to the IRS, and $7,000 to the FTB.  Although I have some equity in my home, I can’t afford to pay back the government now without selling it but would prefer an installment repayment plan or an “offer in compromise,” if available to me.

What are my remedies for dealing with the revenue officers?

Answer: You can enter into an installment repayment plan, at perhaps 11% interest per annum, to pay off what you owe within, for example, 12 months’ time.  Or you may be able to obtain a substantial discount, e.g., down to perhaps 18% of what you owe if you qualify for an “offer in compromise” (“OIC”).  

There are basically two offers in compromise (OIC) options for you.

1. You agree to pay off what you owe within five-months’ time and pay 20 percent of it up-front.  “What you owe” is what the government could obtain from you on a forced sale of your property plus five-months net disposable income.  
2. If you can’t afford to pay this, you may opt for the 12-month plan, i.e., you pay now 1/12 of “what you owe” which includes 12 months of projected net disposable income, not 5 months’ worth.  Both options allow you to borrow funds from third persons to make your payments.       

Offers in compromise are also available with the FTB under separate rules and conditions.  Good legal analysis by counsel is required of your financial condition before submitting the OIC, and considerable care in documenting your financial condition and earnings history in your application is needed for your OIC is to be approved.

Need more help? Contact me for a free consultation.