This is a guest post from Regina King You may have heard that in an IRS Offer in Compromise you can “settle your IRS tax debt for pennies on the dollar” (an Offer in Compromise should not to be confused with general debt relief. This is true in some cases but be wary of any firm that over emphasizes your potential savings without having thoroughly reviewed your case. A review includes reviewing all your tax records. Here are some facts about an IRS Offer in Compromise.
- As of the 2010 Fiscal year the IRS approved 24% of all Offer in Compromise submissions (source: National Taxpayer Advocate Report to Congress Fiscal Year 2011 Objectives).
- To qualify you must meet strict qualifications.
- You have to make an offer to the IRS to settle your debt. After this, the IRS will assess your financial situation and will take into consideration your assets, liabilities and disposable income. After reviewing these factors they issue their ruling.
The aim behind an Offer in Compromise, sometimes abbreviated as OIC, is to increase tax receipts (money coming in to the IRS) by making it easier to you to come forward to the IRS and pay what you can afford. Offer in Compromise Requirements and Guidelines as stated by the IRS According to the IRS, you may submit an Offer in Compromise if you meet one of the following requirements.
- Doubt as to Liability – You can show doubt that the assessed tax amount is correct.
- Doubt as to Collectibility – You must show there is no possibility that you can pay the amount due, or that you are willing to offer the amount of money your financial data shows you should be able to pay. This is the most common method followed by people when filing for an Offer in Compromise. The calculation methods are quite tricky, and could mean the difference between a settlement Offer which is accepted and one that’s rejected.
- Effective Tax Administration – The debtor may have the potential to pay back the full amount of taxes owed but exceptional circumstances prevent them from doing so and would create a financial hardship (such as with the disabled or elderly who can’t generate money).
Filing For an Offer in Compromise Settlement To file an Offer in Compromise settlement, you need to submit a number of forms that vary with your particular situation, such as:
- IRS Form 656 – Offer in Compromise – Using this form the taxpayer offers the IRS a settlement amount money in exchange for the IRS not pursuing the remainder of the tax debt.
- IRS Form 656-A – Income Certification for Offer in Compromise Application Fee and Payment- If you have a low level of income you may not be required to submit an application fee for the OIC .
- IRS Form 433-A – Collection Information Statement for Wage Earners and Self-Employed This form will help the IRS understand your financial situation more closely and allows the IRS to determine if they can collect back taxes from you. This is one of the most important documents in a settlement case. The Form 433-A, along with the complete settlement packet and proposal we create for our clients, is the foundation of your case, and if done incorrectly it can torpedo any chances you had of getting your settlement offer accepted.
- IRS Form 443-B – Collection Information Statement for Businesses – This form is similar to form 433-A, but for businesses. You are required to file this form if you want to include your business taxes in an OIC. The same comments apply to the 433-B that I mentioned for the 433-A, except more so. The settlement packet and proposal for a client who has a business or who owes business taxes is very, very sensitive and must be done right the first time. Business financial statements and proposals are best not left to folks who aren’t well-versed in them.
Other things to know about submitting an offer in compromise
- There is a $150 application fee to submit your offer
- In a lump sum payment offer you must pay the IRS back in five payments or less
- In a short term periodic payment offer you can take up to 24 months to pay the offered amount.
- In a deferred periodic payment offer you must pay over the remaining statutory period for collecting the tax.
Why You Should Use a licensed tax professional for an Offer in Compromise The IRS rejected 76% of all Offer in Compromise submissions during the last fiscal year. Those are tough odds. An experienced tax attorney can offer you the protection of attorney-client privilege, plus years of experience in working with the IRS. They use tools to avoid errors that can harm your chances, and their knowhow to maximizes the chances of your Offer in Compromise being accepted. This includes understanding changes to rules and procedures that the IRS makes from year-to-year, or even month-to-month sometimes. The reality is you need true legal expertise to help you with your IRS problem just as you need a medical specialist to help you if you have a heart problem. The good news is even if you can’t qualify for a reduced tax bill with an Offer in Compromise, many people still qualify for other good options, like affordable monthly IRS payments. The goal is to allow you to resolve your tax issues and move on with your life.