There is no single answer to the question posed above. Perhaps the most useful response is that the best option is the one in which you clear your tax debt in the shortest amount of time with the least amount of financial hardship.
In one previous post, we discussed the potential value of seeking a first time penalty abatement. It’s not something that every Minnesota or Wisconsin filer qualifies for. It typically requires paying off the full amount owed, but those who do qualify may be able to avoid the penalties that might normally be levied
Also, as we noted in our last post, if you don’t have the means to meet living expenses and pay what you owe in taxes, it may be possible to receive “currently not collectible” status. That can give you a major window of opportunity to clear the air, but penalties and fines keep accruing.
There are at least two other options that might serve to provide relief. It depends on the specific circumstances of your case. One might be to make an offer in compromise. The IRS is not blind to the reality that there are times when a taxpayer’s financial situation is such that he or she will never be able to pay the full amount owed. An offer in compromise involves offering to pay a smaller lump sum, based on an established IRS formula. If approved, it can be paid in installments.
Assets that can be liquidated to meet the tax bill present another possible route to resolution, as broadcast personality Steve Harvey learned recently. He was confronted with a $25 million tax bill because of what he says were some “not so smart things” done by his former accountant.
By working with the IRS, working hard and selling off a radio network he owned, Harvey was able to settle that huge debt under an installment plan.
Perhaps the key ingredient in all of the options listed here is being responsive and forthcoming when the IRS notifies you that it thinks significant taxes are owed. Where respect is concerned, the IRS tends give as good as it gets.