A: When you or your franchise owes past taxes that are difficult to pay, there are five different ways to deal with the debt. The important thing is that you do in fact handle the debt and communicate with the IRS. Not a few taxpayers deal with their tax problems by sticking their head in the sand and ignoring the problem. We don't want to be like my old client who ended up owing Uncle Sam so much money, mostly due to interest and penalties, that the lien placed on his home was worth more than the home itself.

Here are your options:

1. Installment agreements: The easiest way to handle an outstanding tax debt is to set up an installment agreement with the IRS. The process of setting up the plan is fairly simple:

First, confirm your outstanding total tax indebtedness with the IRS and then fill out form 9465, the IRS installment agreement request. On the form, you will get to choose what day of the month you want to make your monthly payment and how much you can reasonably afford to pay. The IRS will respond to your proposal within 30 days. You can also do this over the phone by calling 1-800-829-1040.

2. Offer in Compromise (OIC): This dandy tool allows certain taxpayers in certain situations to relieve themselves of their entire tax burden without paying the entire amount. I once did an OIC for a woman who owed the IRS about $25,000, and she ended up paying $1,700 - total.

Before you get too excited, understand that the OIC has, not surprisingly, some tough restrictions. Your tax debt can be legally compromised if one of the following applies to you:

1. Doubt as to Liability - There is doubt as to whether the assessed tax is correct. This is usually pretty tough to prove.
2. Doubt as to Collectibility - More common, this provision allows the tax to be reduced if it can be shown that it is unlikely you will ever be able to pay it in full.
3. Effective Tax Administration - Here, you must show that paying the tax either would create an extreme economic hardship for you or would be unjust.

Essentially, an OIC will be acceptable if the settlement amount you offer equals 60 months of your disposable income, plus an amount equal to the equity in all of your assets. In the case of the woman I represented, she rented, owned few assets, and was retired living on a very meager income, hence her good settlement. If you have equity in your franchise, this will be a large impediment for this solution.

To apply for an OIC, you must fill out form 656, Offer in Compromise, and form 433-A, Collection Information Statement.

3. Partial-payment installment agreement: Similar to an OIC, this fairly new program allows you to make monthly payments to the IRS, but even though the total payments of the installment agreement may not pay off the entire tax debt, once you fulfill its terms, the rest of the debt is extinguished.

To be eligible for a partial payment plan, you must know how much you owe, when the statute of limitations on your debt is set to expire, and the collection potential of the debt. You definitely need a tax professional to help you with this one.

4. Not currently collectable: If you are simply unable to currently pay your tax debt, you can request that the IRS deem the debt "not currently collectible." If agreed, the IRS will stop all collection activities, including garnishments and levies, for at least a year.

To apply, submit form 433-F.

5. File bankruptcy: I filed many a bankruptcy for clients who used the process to reduce or eliminate their back taxes, but note, here again the rules are quite specific, and you would likely lose your franchise. Note: A lawyer's help will be required.

Tax debts are never comfortable, but it should be good to know you have some options.

About Steve Strauss

Steven D. Strauss is one of the world's leading experts on entrepreneurship. A lawyer, author, and public speaker, his latest book is The Big Idea: How Business Innovators Get Great Ideas to Market. Steve's columns regularly appear on USA Today.com, Workz.com, Bizland.com, and Staples.com, among others. You can sign up today for his free newsletter, "Small Business Success Secrets!" at his business web site - www.MrAllBiz.com.