The Offer in Compromise Program – Designed To Allow The Taxpayer To Settle IRS Tax Debt For Less Than Is Owed.
Tax debt is one of the most serious and most stressful issues that anyone can face. Owing back taxes can have a tremendously negative impact on almost every aspect of your life, leading to levies being placed on your bank accounts, wage garnishment, and even repossession of personal property. But there are options for dealing with tax burdens, and different methods of alleviating stress built up from debt exist.
One of the options is known as an Offer In Compromise.
An Offer In Compromise is a way to actually wipe away most of your debt by paying a much smaller amount than you owe. The overall amount you will have to pay can vary, but in some cases as little as 1% of the total amount of taxes owed has been accepted by the IRS. You’ll agree to pay a lower amount in full and the IRS will agree to accept that smaller amount and erase the remainder of your tax debt.
Of course, the IRS doesn’t have to do this. It’s not something that everyone can do, and you’ll have to meet a number of very specific requirements. Only around 15 to 25% of the Offer In Compromise requests made in the last few years were actually accepted. As a result, it’s not something that you should absolutely assume is going to work, but it is something that could help you if you’re able to qualify.
Usually, an Offer In Compromise involves making monthly payments for a set period of time in order to pay off the agreed upon debt. There are several different pay schedules that could be used, and the one that applies to you will depend upon the specifics of your situation. Still, it will mean paying a lower amount than you owe, and as a result the monthly payments are usually easier to meet than a standard payment plan from the IRS.
So just how does one qualify for an Offer In Compromise? There are a few different requirements, but in general the IRS needs to find two different things to be true:
• That the full payment of your tax debt will cause economic hardship for you.Exceptional circumstances must apply here, and you’ll need to show that you simply can’t pay the full amount without causing other serious problems in your life.
• That there is doubt that the IRS will ever be able to collect the full tax amount from you. This usually means that your income level and the amount you owe are so vastly different that making the full payment would be nearly impossible. This is known as “Doubt As To Collectability”.
Another option is to try to prove that your actual tax liability is incorrect.
By filing Form 656-L you can file a Doubt As To Liability offer. This looks at the tax records to determine whether or not there is any doubt that your tax debt assessment is even correct. However, this is a very difficult option and one that is rarely used – and rarely successful.
There are a few things you’ll have to do in order to file an Offer In Compromise. Very strict guidelines must be followed – this isn’t like haggling on the price of a used car, after all.
• Form 656 is the Offer In Compromise form that needs to be submitted in order to start the process. There will be a $184 fee associated with the actual filing of the form, though those who fall below poverty levels may be exempt from this fee.
• Form 433-A must also be sent in. This is the Collection Information Statement and includes information about you, your finances, your taxes, and more. The IRS will carefully look this at, and as a result you need to take special care in ensuring that every part of it is factual and accurate.
• Once your forms are submitted, you’ll need to submit a wide range of documents in order to allow the IRS to look at your information in full. You’ll have to submit bank records, vehicle information, pay stubs, tax forms, and much more. It can take a tremendous amount of time and effort, and in most cases it is the most difficult part of the process.
The exact amount that you should offer the IRS will vary as well.
The guidelines the IRS puts forth say that the amount of your Offer In Compromise should be equal to the total realizable value of your assets, added to the amount of money you could have taken from future income. You’ll have to take a look at your assets, their values, and more in order to determine what kind of offer you should make.
It’s important to understand that a few things happen when you submit an OIC request to the IRS in addition to having your info reviewed.
Specifically, your interest will continue to accrue during the review process. Additionally, you’ll be providing a huge amount of info to the IRS that they can use to collect the full amount if they deny your request. In other words, you may find that you’re in an even worse situation that you were to begin with if you are refused an offer. As a result, you need to make certain that you are likely to be approved and that you have all the information ready to go when you start the process.
Your offer could very well be rejected, for numerous reasons including:
• Your offer is too low to be accepted
• You have a criminal history
• You fail to show adequate reason to receive an approval
In the event that your offer isn’t large enough for acceptance, the IRS will actually send a letter that states the acceptable amount.
If you agree with this figure, you can resubmit your offer to meet the new amount. There’s no need to fill out a brand new Form 656 unless more than one month has passed – or if your financial circumstances have changed in a significant way. If your offer or your situation has changed in a major way, a new Form 656 will need to be submitted.
There’s also a chance that you can appeal a rejection as long as you do so within 30 days of your rejection letter’s date. During the appeal process the penalties and interest on your outstanding balance will continue to accrue.
Obviously, the Offer In Compromise is a very complex option when trying to escape from IRS debt. There is a wide range of variables that can influence an approval, and with such a low acceptance rate it’s important to take all the steps necessary to obtain the right results.
In almost any situation, getting help from a professional tax attorney is the right call. These attorneys can help determine if an Offer In Compromise is even the right call for you and your situation, how much your offer should be, and more.
They’ll also help take over the process of filing for an OIC so you don’t have to deal with the stress. Attorney Mary King has been practicing tax law since 1993, and has helped numerous clients get the kind of tax relief they need. If you think an OIC could be right for you, setting up a consultation with her is the best first step you can take.
As a local Tax Attorney concentrating in IRS Problem Resolution, I can help you decide if an Offer in Compromise is the right solution to your IRS tax debt problem. Please call the Law Office of Mary E King to schedule your consultation at 941.906.7585 or email Sarasota Tax attorney Mary King Esq. for your IRS Tax help consultation and learn how the offer in compromise program could help you.