When You Owe the IRS and Can't Pay

I often get questions from readers and sometimes I'll answer them here. If you have questions you'd like to ask, please email me by clicking on the "Contact Ray Martin" link to the left.

Question: My husband has required health care, in private pay nursing homes for the past 7 years, suffering Picks Disease, presently in Hospice Care. All our savings has been spent, including the sale of our home. I owe the IRS 10,000.00, and have nothing to pay it with. What is my best alternative to use, as I have no idea of how to go about this! My husband is slowly dying and I suffer this debt along with losing him. Can you help me?

Thanks so much,

Ann B.

Ray Answers
Dear Ann,

First let me say that my heart goes out to you. I can only imagine the difficulty you and your husband are dealing with. My prayers are with you.

In respect to your question about paying what you owe the IRS, in one of my prior posts I gave advice for folks who owe the IRS but can't pay in full.

In respect to your specific situation, I'd suggest you apply for an Offer In Compromise, or OIC. This is where the IRS and you would agree to settle the tax liability for less than the full amount owed.

With an OIC, the reduced amount allowed to be paid must equal what the IRS believes they can reasonably collect from the sale of your assets such as real property, automobiles, bank accounts, etc. The IRS may grant an OIC on the grounds that there is legitimate doubt that you could ever pay the full amount of tax owed (doubt as to collectability), or there is doubt that the amount owed is correct (doubt as to liability). The IRS may also agree to an OIC if collection of the tax owed would create an economic hardship.

To request an OIC, you must send a completed Form 656, Offer in Compromise and include a $150 application fee.

And please don't go for those pitchmen offering their services to settle your tax debts for "Pennies on the dollar!" If you have a good case - and I think you do - then you can deal directly with the IRS and get the same result, or better.

Ray Martin

View all articles by Ray Martin on CBS MoneyWatch»
Ray Martin has been a practicing financial advisor since 1986, providing financial guidance and advice to individuals. He has appeared regularly as a contributor on the CBS Early Show, CBS NewsPath, as a columnist on CBS Moneywatch.com and on NBC-TV's morning newscast TODAY. He has also appeared on the Oprah Winfrey Show and is the author of two books.

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