Offer in Compromise: IRS Debt Reduction
Pay a reduced amount to resolve back tax debt.
Offer in Compromise (OIC) is a tax debt reduction plan that allows taxpayers to come to an agreement with the IRS to settle a tax debt for less than what they owe. Given the fact that the IRS always seeks to collect as much of your tax debt as possible, only a fraction of OICs that are submitted are actually accepted by the IRS.
Fact: The IRS received 74,000 Offers in Compromise in 2013, but only accepted 31,000 of them.
It’s important to note when applying for an IRS debt payment plan, especially a tax reduction plan, you clearly are not eligible for can attract IRS penalty. Therefore, only consider an OIC if you truly can’t afford to pay your full tax debt.
Requirements of an offer in compromise
When you submit an Offer in Compromise, you are required to sumbit to full financial disclosure. This means you have the tell the IRS EVERYTHING about your financial situation. The IRS reviews your income, expenditures, your assets and any equity you have to determine how much they can realistically expect to get from you. The IRS is rarely generous in its expectations, which is why it is very important to weigh all your options before decide to attempt an OIC.
Advertisements for “Pennies on the Dollar” tax settlements are…
a) Only applicable if you are below the federal poverty line (FPL)
b) Only work if you have tax debt over $50,000
c) Only work if your tax debt is more than 5 years old
d) Are almost always scams
Unscrupulous tax services will accept your money and file an Offer in Compromise for you, knowing full well that you probably don’t qualify.
d) Are almost always scams
If the IRS rejects your OIC, they now know everything about your financial situation; namely, where your income comes from, where your bank accounts are, and what you own. If the IRS rejects your OIC and decides to levy you, they know exactly where to go.
Before submitting an Offer in Compromise, be sure that you can afford to pay the reduced amount. The IRS expects you to be able to pay off an OIC within 2 years. Defaulting on an agreement can attract penalty and could even invalidate the entire OIC, meaning you would again be responsible for the original tax debt amount. Moreover, it makes it more difficult to qualify for a tax debt payment plan again, as the IRS will need a satisfactory explanation for the default. It is very important to be completely aware of what you are doing when submitting an Offer in Compromise.
Submitting an Offer in Compromise
Submitting an Offer in Compromise requires the completion of extensive paper work, including full financial disclosure, which for many can be both tedious and time consuming. Consulting a tax professional is advisable when you are contemplating an Offer in Compromise. A licensed tax professional will be able to advise you on the likelihood of your offer being accepted as well as negotiate the terms and conditions of the agreement, based upon your particular situation. Remember, the IRS will reduce the tax debt only if they find that the reduced amount is the maximum that they can hope to get. Of course, having a tax lawyer to negotiate with the IRS is a big advantage.
Professional help for tax debt reduction will assist you to explore all available options to get the most reduction in tax debt. As tax debt reduction requires negotiation with the IRS, knowledge of tax law and the tax code relevant to the case becomes crucial. For tax debt reduction, especially of a large tax debt amount, it is wise to use expert help to reach a smooth and beneficial resolution.