I owe several year's taxes and am unable to pay. I keep getting notices and penalties and interest continue to pile up. What can I do?

An offer in compromise is an agreement between a taxpayer and the IRS that resolves the taxpayer's tax debt. The IRS has the authority to settle, or "compromise," federal tax liabilities by accepting less than full payment under certain circumstances.  A tax debt can be legally compromised for one of the following reasons:

Is there any special assistance available on unresolved tax matters which are creating a hardship?

If you are suffering, or about to suffer a significant hardship because of the way Internal Revenue laws are being carried out, you may ask for special help.

Yes. If you cannot pay the full amount due as shown on your return, you may ask to make monthly installment payments. However, you will be charged a one time user fee of $43.00, and you may be charged a late payment penalty unless you can show reasonable cause for not paying the tax by April 15, even if your request to pay in installments is granted.

What kind of penalties and interest will I be charged for paying and filing

my taxes late?

Interest, compounded daily, is charged on any unpaid tax from the due date of the return until the date of payment. The interest rate is the federal short-term rate plus 3 percent. That rate is determined every three months.

In addition, if you filed on time but didn't pay on time, you'll generally have to pay a late payment penalty of one-half of one percent of the tax owed for each month, or part of a month, that the tax remains unpaid after the due date, not exceeding 25 percent. However, you will not have to pay the penalty if you can show reasonable cause for the failure. The one-half of one percent rate increases to one percent if the tax remains unpaid after several bills have been sent to you and the IRS issues a notice of intent to levy.

If you did not file on time and owe tax, you may owe an additional penalty for failure to file unless you can show reasonable cause.

Interest is charged on any unpaid tax from the due date of the return until the date of payment. The interest rate is determined every three months and is the federal short-term rate plus 3 percent interest is compounded daily If you paid the next amount of tax that was due based on the tax shown on the return, but subsequently determine that more tax should have been shown on the return, then a failure to pay penalty becomes due. However, when IRS bills you for any tax, penalty, or interest, if the bill is not paid within 21 calendar days (10 business days if the amount equals or exceeds $100,000), a late payment penalty will be due from the date of the bill unless you have reasonable cause for the failure.

In addition, if you filed on time but didn't pay the net amount due based on the tax shown on the return, you will generally have to pay a late payment penalty of one-half of one percent of the tax owed for each month, or part of a month, that the tax remains unpaid after the due date, up to 25 percent. However, you will not have to pay the penalty if you can show reasonable cause for the failure.

Estimated quarterly income taxes for a corporation were not paid. What is the penalty amount? Is there any way to reduce the penalty?

If the corporation does not pay a required installment of estimated tax by its due date, it may be subject to a penalty. The penalty is figured separately for each installment due date. The corporation may owe a penalty for an earlier due date, even if it paid enough tax later to make up the underpayment. This is true even if the corporation is due a refund when its return is filed.

If the corporation is charged a penalty, the amount of the penalty depends on the following three factors:

The penalty may be waived by IRS on a case-by-case basis if the failure to make estimated payments was caused by a casualty, disaster, or other unusual circumstance.

Is there something I can do if I don't agree with the amount of tax, penalty and interest the IRS says I owe?

There are generally three ways in which a Federal Tax Lien can be released:

What is the minimum amount of estimated tax that I am required to pay without incurring any penalty or interest charges?

Relief now falls into three categories: Innocent Spouse Relief; Separation of Liability; and Equitable Relief. Each of these kinds of relief has different requirements. They are explained separately below.

Yes, each spouse can file a Form 8857 to request relief from liability from tax, interest and penalties.

The non-requesting spouse has no appeal rights, unless that spouse files his/her own claim. If relief is denied and the requesting spouse petitions the U.S. Tax Court, the non-requesting spouse, by law, will be given the opportunity to be a party in that proceeding.

To qualify for innocent spouse relief, you must meet all of the following conditions:

Erroneous items are any deductions, credits, or bases that are incorrectly stated on the return, and any income that is not reported on the return.

An understatement of tax is generally the difference between the total amount of tax that should have been shown on your return and the amount of tax that was actually shown on your return. For example, you reported total tax on your 1996 return of $2,500. IRS determined in an audit of your 1996 return that the total tax should be $3,000. You have a $500 understatement of tax.

No. There are many situations in which you may owe tax that is related to your spouse, but not be eligible for innocent spouse relief. For example, you and your spouse file a joint return that reports $10,000 of income and deductions, but you knew that your spouse was not reporting $5,000 of dividends. You are not eligible for innocent spouse relief when you have knowledge of the understatement.

Community property states are Arizona , California , Idaho , Louisiana , Nevada , New Mexico , Texas , Washington and Wisconsin . Generally, community property laws require you to allocate community income and expenses equally between both spouses. However, community property laws are not taken into account in determining whether an item belongs to you or your spouse (or former spouse) for purposes of requesting any relief from liability.

Yes, IRS requests that you attach a statement to the Form 8857, providing additional information you wish to be considered.

No. The IRS automatically will consider whether any of the other provisions would apply.

No. IRS will consider your request under the new law as long as the liability was unpaid as of July 22, 1998 .

IRS will base their decision upon all the information available to them. If enough information is not available, it could adversely affect a request for relief.

No. IRS cannot consider your claim for any year in which an Offer in Compromise was accepted. Acceptance of an Offer in Compromise conclusively closes the tax year(s) compromised from any re-determination of the tax liability.

The innocent spouse rules may apply in your situation. However, regarding the installment agreement, there are some important considerations:

Injured spouse relief is different from innocent spouse relief. When a joint return is filed and the refund is used to pay one spouse's past-due child and/or spousal support, a past-due federal debt, or past-due state income tax, the other spouse may be considered an injured spouse. The injured spouse can claim his/her share of the refund. To be considered an injured spouse, you must have:

You are eligible for relief, but relief does not fall under the innocent spouse rules. If you can establish your signature was forged, and there was not implied consent, the return is invalid with respect to you.