Strike a Deal With the IRS

Suppose you owe the Internal Revenue Service more than you can ever possibly hope to repay. What can you do?

One possible solution: Ask the IRS to compromise and accept less than the full amount you owe.

Although getting the IRS to agree to a compromise typically is very difficult, it can be done -- especially if you have a well-documented case. To apply, see the IRS Web site (www.irs.gov) and look for the "Form 656" package, which was revised earlier this year.

Some accountants and other tax advisers who have been through the process say it can be a painful ordeal. They say the IRS takes too long to make up its mind and rejects too many reasonable offers. IRS officials say they have taken steps to improve the program, adding that the program was hurt in the past by many applicants who made unrealistically low offers or didn't fill out the forms correctly.

If you decide to apply, keep in mind a major change introduced about a year ago, brought on by a change in the law: Most applicants are now required to make an upfront, nonrefundable partial payment. For example, taxpayers making a "lump-sum" cash offer -- payment made in five or fewer installments -- typically have to include a payment equal to 20% of the amount offered. However, individuals may be exempt from this rule and from the application fee if they can certify their household income is at or below levels based on the IRS's low-income guidelines.

Before hiring a company that says it can help settle your IRS debts for pennies on the dollar, check it out carefully. The IRS long has been concerned by what one official once referred to as "unscrupulous promoters charging excessive fees to taxpayers who have no chance of meeting the program's requirements."

Officials "continue to have the same concerns today," a spokesman says.

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