Not everyone can pay their tax bill. These situations can impact anyone, including some of the Hollywood elite. Famous actor Wesley Snipes provides an example. The actor attempted to make a deal with the Internal Revenue Service (IRS) after getting a $23.5 million tax bill.
He did this by offering a settlement, referred to as an offer in compromise.
What is the benefit of an offer in compromise? An offer in compromise allows a taxpayer to offer a payment that is less than the outstanding bill. In exchange, the IRS will forgive the remaining tax balance.
Why would the IRS accept this offer? If an offer is structured and presented wisely, the taxpayer can make a successful argument that the offered amount is the most the taxpayer would be able to pay the IRS. The IRS would accept the offer based on the reasoning that some payment is better than none.
Did it work for Wesley Snipes? The actor offered to pay the IRS four percent of his total tax bill. Once the IRS receives an offer, it will generally conduct an investigation. This investigation digs into the taxpayer’s financials with the goal of checking into whether or not the taxpayer could potentially pay off a larger portion of his or her tax obligation before the statute of limitation for collection efforts expires. In most cases, this translates to approximately ten years after the agency asses the tax obligation.
After the investigation, the IRS stated it found evidence that Snipes could pay substantially more than the proposed $842,061 of his $23.5 million tax bill. As such, his offer was denied.
Those who find themselves in a similar situation can benefit from legal counsel. The attorneys at Goldburd McCone, LLP, can review your situation and provide guidance on the likelihood of a successful offer in compromise.