No, you cannot get rid of your tax debt for pennies on the dollar

For many Americans, the tax season is over. Their federal tax returns are in, and they’ve made vacation plans knowing they can pay for their fun in the sun with a fat refund.

But then there are those who owe. For them, there is the ticking time bomb of their tax debt, plus the added burden of interest and penalties. Knowing they can’t come up with what they owe, they didn’t file. They are taking a chance their tax delinquency will go unnoticed — at least until they figure out how to pay.

Yet with each passing day, their tax debt grows. The IRS imposes a penalty if they don’t file and another if they don’t pay. And, by the way, interest accrues on top of penalties.

Fearing the worst — which is that the IRS will garnish their wages or come after their home or other assets — a lot of people get desperate and turn to what they think will be a savior.

“Can’t pay your taxes?” an announcer on the radio asks. “Got $10,000 or more in tax debt? We can help.”

But it’s hype. Don’t do it. Don’t make the call. Don’t fill out the online profile. If you do, you’ll likely increase your anxiety, because you’ll end up paying hundreds if not thousands of dollars to the firm for something you could have done yourself. Or worse, the tax-debt relief company is a complete con, and they will take your money and do nothing.

Based on interviews with people who went down this path, here’s what happens. You call. They take your information and you send them documents — W-2 forms, 1099s, etc. Then you wait. And wait. And wait. You call back. You are told they are processing your application or that they are waiting for a response from the IRS. You call again, but this time you can’t get anyone to explain why it’s taking so long for you to get relief.

You’ve been had. And the money you’ve spent could have been used to pay down your tax debt.

The tax-debt relief companies often don’t adequately disclose that getting an OIC accepted is a Herculean process. To qualify, the IRS will look at your income, expenses, ability to pay and, most importantly, whether you have any assets — including equity in your home.

You can apply for an OIC yourself. At irs.gov, search for the “Offer in Compromise Qualifier” tool to see if you’re eligible. You’ll see that the first few questions could eliminate a lot of folks. You can’t be involved in an open bankruptcy proceeding. You have to have filed all required federal tax returns.

If the results indicate you aren’t eligible, contact the IRS anyway. You can still make a case that you have extenuating circumstances — such as a serious illness — that prevent you from paying your taxes in full.

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