Living in a California county where housing costs and other living expenses are high can be challenging at times. For instance, if you're used to living on two full incomes, then you or your spouse loses a job, your entire financial foundation may suddenly be on shaky ground. Even if you're both still employed, an unexpected matter, such as urgently needed medical care or a family crisis, can throw your finances out of whack so that you have trouble paying what you owe the Internal Revenue Service for taxes.
The IRS won't forget that you owe payment on a tax debt. If you can't find a way to pay your taxes in full, you might want to consider an offer in compromise. While the IRS is often hesitant to accept such an agreement, there are times when it may be the most viable solution. An OIC allows you to pay back less than what you owe. Support is available to help you determine if an OIC might be a better option that filing for bankruptcy.
How to tell if you're eligible for an OIC
The IRS is under no legal obligation to accept an OIC offer from you or anyone who owes tax money. However, it may be in the government's best interests to accept such an agreement if it means the difference between getting some money back or none at all. The following list includes factors the IRS considers before deciding whether to accept an OIC offer:
- Your inability to pay in full: If the IRS thinks you have means for paying back your total tax debt, chances are nil that you'll secure an OIC agreement. You have to establish a clear inability to pay before the IRS will even consider an OIC plan. In short, if you have money set aside for vacation and simply don't want to use it to pay taxes, that may be a problem.
- Your current income: If you are facing temporary financial problems because you've been spending more than you earn or treating credit like cash, it's not likely the IRS will accept an OIC offer from you. If your current income shows sufficient resources coming in to pay taxes, the IRS expects to use those resources to pay taxes.
- Expenses outweigh income: If you or your spouse loses a job or some other issue arises that causes your expenses to be more than your income, it might mean you are eligible for an OIC.
One of the biggest deciding factors of eligibility for an OIC is that you must be in good standing regarding your tax record. If you are not up to date with your filings and past payments, it's highly improbable that you'll be able to obtain an OIC agreement.
How to know if an OIC is better than bankruptcy
Even the most serious financial problems are often temporary. How soon you recover often depends on how well you understand the various options available in your particular situation. What works for one person may not even be possible for another, which is why it helps to rely on guidance from someone well versed in California bankruptcy law before deciding which course of action to take.