Business owners often have complicated income tax returns. They may have to file tax returns for the company that they operate and for themselves as individuals. Particularly when a company has had a successful year, the owner of the business may not have retained adequate capital to cover what they owe. They may also have made mistakes when calculating their tax responsibilities, especially if they attempted to do so on their own without a professional.
Mistakes on income tax returns lead to substantial income tax debts that may put the filer’s reputation and resources at risk. The company could also be vulnerable in some cases. Can a business owner resolve outstanding tax debt for less than the full amount currently due?
Reducing the balance owed is sometimes possible
The Internal Revenue Service (IRS) is essentially the biggest collection agency in the world. The IRS devotes the vast majority of its budget to analyzing tax returns and collecting unpaid balances from both individuals and businesses.
A business owner facing a significant past-due balance may worry about personal financial hardship or business insolvency because of tax obligations. Thankfully, it may be possible to reduce what they ultimately have to pay to the IRS.
The IRS does accept reasonable offers in compromise in scenarios where taxpayers cannot immediately offer the full amount owed plus the interest and penalties assessed. An offer in compromise is essentially a settlement offer based on current financial circumstances and the overall amount of the debt.
The IRS reviews each offer in compromise carefully to determine whether accepting it is a viable option. Business owners may offer a lump-sum payments based on their personal resources and company assets. Other times, they may propose a monthly payment plan based on their income and the revenue the company generates.
An offer in compromise typically needs to cover enough of the tax debt to be viable in the eyes of IRS professionals. Taxpayers often have to commit a significant portion of their disposable income or available resources to repay the IRS.
Frequently, those facing tax controversies that endanger their personal resources and/or the business they run may want to get assistance when communicating with the IRS. The right support can help business owners evaluate their options when responding to a major tax controversy. Making an offer in compromise is one potential solution for business owners with significant tax debts.