One common source of debt is federal taxes, whether they be income taxes, payroll taxes, or other types taxes related to a business endeavor. Unfortunately, federal taxes are not typically dischargeable in bankruptcy proceedings, which can leave people still owing significant amounts of debt, even if they are successful in discharging other debts through bankruptcy.

The Internal Revenue Service (IRS) does provide some options for minimizing or at least reasonably handling federal taxes that are owed. Through the offer in compromise process, an individual or a business can offer to pay an amount that is less than the tax debt that is actually owed to the federal government. An offer in compromise may be an option if an individual simply cannot pay the full tax debt, or if paying the full tax debt would result in financial hardship. Each case is considered individually by the IRS and the decision whether to accept an offer in compromise is based on the following factors:

• Ability to pay
• Available income
• Amount of expenses
• Equity in any assets owned

The IRS provides a comprehensive guide and forms for participating in the Offer in Compromise program, Form 656-B. By submitting the appropriate forms, a non-refundable $150 application fee, and an initial payment to the IRS, an individual or business can submit an offer in compromise regarding any amount of federal taxes owed.

You have the option of either offering the IRS a lump sum cash payment, which is payable in an initial installment of 20% of the lump sum offer, and then the balance in five or fewer payments, or in monthly installment or periodic payments. While the IRS is considering an offer in compromise, you must continue to make payments as set forth in your offer, and all other collection activities will be suspended. However, you cannot be involved in ongoing bankruptcy proceedings while participating in the offer in compromise program.

If you owe federal taxes, the offer in compromise program may be an option for you, depending on the situation. On other hand, bankruptcy proceedings, or other form of relief, might be a better choice in your case. To explore all of these options and decide which option is best for you, contact our office to speak with an experienced Arizona bankruptcy attorney today.