If you have IRS tax debt, then the IRS offer in compromise program might be for you. The offer in compromise program is a way to lower or even eliminate your IRS tax liability. But, what is it, and how does it work? In this blog post, we will discuss the IRS offer in compromise program, including eligibility criteria, benefits of the IRS’ tax debt compromise program, and whether or not an IRS Tax Attorney can help you determine if this option is right for you.
What is the IRS Offer in Compromise Program?
The IRS offer in compromise program is a way for a taxpayer to settle delinquent federal tax liability. The Internal Revenue Code (I.R.C.) spells out the qualifications for an OIC proposal, including:
You must be unable to pay off your full tax amount while meeting your daily needs of food and clothing for your family as well as other necessities such as mortgage/rent, utilities, medical care, or childcare. The IRS will evaluate your present and future income when evaluating your offer to settle your tax liability for less than you owe. They will also look to the current year to determine if you’re making estimated tax payments for the current period.
You must be unable to sell property in order to raise funds with which to pay off your IRS tax liability in a lump sum, and you must not have sufficient equity in assets outside of the IRS lien (i.e., interest) on any other real estate that can be surrendered for a lump sum.
You cannot be in bankruptcy or in IRS Tax Court.
If you are considering an offer in compromise for your unpaid taxes, then the IRS must determine that accepting a lesser amount will promote the “effective collection of tax.” The IRS may request additional information from you and/or financial documentation to verify eligibility requirements have been met before accepting an OIC proposal on your behalf. For example, outside sources (i.e., inheritance, ability to borrow, etc.) willing to pay off part or all of the IRS liabilities; monthly income versus expenses (including non-deductible living expenses), property owned by the taxpayer, etc. Many of these criteria were modified by the IRS through the IRS fresh start program.
Benefits of the offer in compromise program?
The benefits of this program include:
-the offer in compromise program can help remove IRS tax liability.
-offers in compromise are designed to meet the needs of both taxpayers and the IRS.
– IRS Tax Lawyers can review your options with you, determine if filing for an IRS offer is right for you and represent your case before the IRS on behalf of their clients.
Offer in compromise taxpayer success stories
The IRS offers a debt relief program that typically wipes out, on average, up to 80% of the taxpayer’s debt, but participants must meet prerequisites such as being in “reasonable economic hardship” and certain income and equity tests.
Does the IRS forgiveness program still work?
IRS Tax Debt Settlement Programs can help you reduce your IRS debt based on your ability to pay. Find out more about the offer in compromise program requirements for qualification, and the benefits of working with an IRS tax attorney who is experienced with these types of cases.
To settle your tax debts, then you must submit the IRS Offer-in-Compromise forms after completing a financial analysis. If you meet the requirements for a settlement, the IRS will enter into an agreement with you to compromise your outstanding back taxes.
Do I qualify?
The Offer Program may be right for those experiencing IRS Tax Debt, but do you qualify? When you submit an offer, the IRS will review form 433 and form 656 to determine what they call “reasonable collection potential” when you apply for an offer. Reasonable collection potential is a review of your current and future financial condition and is calculated by reviewing whether your able to full pay your taxes through monthly payments, or in the alternative, would full payment create a financial hardship for you and/or your family.
In addition to “a doubt as to collectability” offer, you may also want to discuss whether you qualify for an offer – “doubt as to liability” or based upon “effective tax administration,” which are two other forms of offer in compromises.
I have IRS tax liability
In order to qualify for an offer with the IRS, you must:
- have a current balance due and have filed all required tax returns and are current of your estimated tax payments;
- owe no other delinquent taxes to the IRS besides the tax due noted in the offer application; and
- have filed all prior year returns(if applicable) regardless of the filing requirement date. If any exception applies to you, then an IRS Tax Attorney can help with determining whether the IRS offer program is right for you.
Benefits of IRS offer in compromise:
- A successful offer will lower or eliminate your IRS tax bill and settle your tax debt for less than you owe;
- If approved, there may be no need for litigation or other collection activity that could result in levy (garnishment) against property such as wages, bank account deposits, and Social Security benefits. This can also include getting rid of liens attached to assets like homes or vehicles once the oic offer amount has been paid.
Whether or not an IRS Tax Attorney can help you determine if this option is right for you:
If you have any questions about whether or not an offer might be a good option for your circ*mstances, then contacting an IRS tax attorney, or qualified tax professional, may be helpful to answer those questions and see if it’s something that would work well for you.
An IRS attorney will typically review your financial information so they can advise on what type of settlement offer should be made by the IRS. This also includes whether you should make a lump sum offer (paid in 5 or fewer payments) or a periodic offer (which is paid in 24 months). If you do not qualify for an OIC, then some other options could include settling debt via installment agreements as opposed to having assets taken away because they were levied (garnished).
IRS tax attorneys can also provide advice on whether or not you should file for bankruptcy, which is a different area of law and has its own criteria to qualify. Failing to resolve IRS Tax debt may result in your assets being locked up and taken away due to liens or levies that were attached when your taxes weren’t filed timely. If so, then the Offer in Compromise Program might be right for you!
An IRS attorney will review your information before determining if you should submit an offer, as well as whether you qualify as a low-income taxpayer to waive certain application fees based upon the low-income guidelines. The IRS may agree to an offer in compromise, payment plans, non-collectible status, or a partial pay installment agreement, just to name a few, instead of garnishing assets, which is a possibility when taxes are owed.
Apply with form 656 and form 433
An offer in compromise is an option if you can’t pay back the full amount you owe from your future income and assets. For those who are approved, the IRS will accept less than the full amount owed to settle your debt.
Before you start, make sure you have filed all your past-due tax returns, but be careful. In many instances, only certain tax years will require a tax return filing. You must become what the IRS calls “current and compliant.” This means you have filed all required tax returns and are current with your estimated tax payments. You also can’t owe any other delinquent IRS taxes, besides the one noted on the offer application. When you’ve become “current and compliant,” you and your tax attorney will then be ready to complete and submit IRS offer in compromise form 656 and form 433 for your offer.
How much should you offer in an offer in compromise?
The IRS will consider your ability to pay as well as the IRS’s assessment of how much you owe. The IRS assesses this by looking at all sources of income and assets, including property ownership, work history, unemployment compensation amounts collected from state or federal agencies, etc., in order to determine an offer it deems reasonable for them. Once they’ve agreed on a figure- whether that be less than what you owe (a lump sum) more than what you owed (a partial payment installment agreement), then a tax attorney can help you finalize your agreement with the IRS in satisfaction of your back taxes.
Does an offer in compromise affect your credit?
Currently, the offer programs does not affect your credit score. However, if you’re considering filing for bankruptcy then it will likely have an adverse effect on your credit score and there are other factors that can also negatively impact a person’s number (late payments, loans, etc).
list the downsides of an OIC?
By law, the IRS cannot collect after the expiration of the Collection Statue Enforcement Date, similar to a statute of limitations, in most cases that is ten years from when the tax was assessed, unless you have taken actions that may extend this timeframe. It takes about a year from when you submit your offer in compromise to approval from the IRS.
While the IRS is reviewing your offer, this will toll the Collection Statute Enforcement Date and cause your “statute of limitations” to extend beyond 10 years. Therefore, it is very important to only submit offers that you believe will qualify based upon your financials. If you appeal an OIC denial, it will take several months for them to decide if the appeal is acceptable or not and this too will continue tolling the statute.
The IRS can’t collect taxes if an OIC is approved. This takes about a year from when they apply before it gets accepted or denied. If you make a mistake with an offer or fail to report assets that could help you pay your back taxes, the IRS could invalidate your agreement and all of your tax balance has to be paid back immediately.
Options for rejected offers
If the IRS rejects an Offer in Compromise, there are two ways to respond. You can resubmit the offer, or you can go to an appeal process. If you do it less than a month from the first offer, then you should not need to fill out a new form 656. The IRS doesn’t always accept offers and the acceptance rate is fairly low for DIY’ers.
Tell me the acceptance rate?
The IRS accepted 25,000 of 62,000 offers in compromise in 2017. The IRS has a 40.3% approval rate for more than a billion dollars, with OICs and experts saying the average dollar amount per offer amounted to nearly $15,000. The OIC procedure can be used by people who have lower incomes, and it is advised to use an offer in compromise if you have limited income or are close to bankruptcy.
The IRS Offer Program might be right for you! If so, then the IRS may work well with your circ*mstances since that IRS offer is governed by law and IRS can’t collect taxes after ten years (tolling periods may apply).
Appealing a rejection
You have 30 days to file an official request for appeal. You can do this by completing this form and following the instructions in your letter from the IRS. If they reject your offer, you may be able to appeal their decision. This is a very important process that you should not ignore!
Keep an eye out for tax relief scams
Some companies offer to help you pay the taxes that you owe. But the company might charge a lot of money for this. It could be a scam if the company does not submit your offer to the IRS. If it sounds too good, it probably is.
In conclusion, submitting an offer in compromise with an experienced tax attorney is an alternative to bankruptcy for people who can’t pay their taxes. If you would like us to evaluate whether the IRS offer program is right for you, then please feel free to give us a call anytime.
Contact us onlineor call (601) 957-9672 to schedule a free consultation.
As an expert in tax law and financial solutions, I've spent considerable time researching, analyzing, and providing guidance on topics related to IRS tax debt relief, including the Offer in Compromise (OIC) program. My expertise stems from my understanding of the Internal Revenue Code (I.R.C.), practical experience with tax-related matters, and familiarity with IRS procedures and regulations up until my last update in January 2022.
Let's dive deep into the various concepts mentioned in the article:
IRS Offer in Compromise Program:
The IRS Offer in Compromise program is a mechanism designed to allow taxpayers with substantial tax debt to settle their liabilities for less than the full amount owed. This program provides eligible taxpayers with an opportunity for a fresh start by compromising on the tax debt they owe.
Eligibility Criteria:
- Inability to Pay: Taxpayers must demonstrate an inability to pay their full tax liability, considering their basic living expenses such as food, clothing, housing, medical care, etc.
- Future Income: The IRS evaluates both present and future income to determine the taxpayer's ability to pay.
- Asset Evaluation: Taxpayers cannot have the means to liquidate assets or have equity in assets that could be used to satisfy the tax debt.
- Bankruptcy and IRS Tax Court: Individuals involved in bankruptcy proceedings or IRS Tax Court are generally ineligible.
- Effective Collection: The IRS evaluates if accepting a lesser amount from the taxpayer will promote effective tax collection.
Benefits of the Offer in Compromise Program:
- Tax Liability Reduction: Successful applicants can substantially reduce their IRS tax liability.
- Financial Relief: The program is structured to benefit both taxpayers and the IRS.
- Representation: Taxpayers can engage IRS Tax Attorneys to navigate the complexities and represent their interests before the IRS.
Offer in Compromise Taxpayer Success Stories:
The program has successfully aided taxpayers by reducing their debt burden, with some experiencing reductions of up to 80% of their total tax debt. However, it's crucial to meet specific financial criteria and demonstrate "reasonable economic hardship."
Application Process:
- Form 656 & Form 433: Taxpayers must complete and submit these forms, detailing their financial situation and proposing an offer amount.
- Current and Compliant: Taxpayers must ensure they have filed all required tax returns and are current with their estimated tax payments.
Downsides and Considerations:
- Statute of Limitations: While the IRS reviews the OIC, the Collection Statute Enforcement Date is extended, potentially beyond the typical ten-year period.
- Rejection Risks: If an OIC is rejected, taxpayers have limited options, including resubmitting or appealing the decision.
- Acceptance Rate: The IRS has historically accepted a fraction of OIC applications, with an approval rate varying from year to year.
Other Considerations:
- Credit Impact: The OIC program itself doesn't directly impact credit scores, unlike bankruptcy filings. However, other financial behaviors can influence credit.
- Tax Relief Scams: Taxpayers must exercise caution and be wary of fraudulent companies promising unrealistic outcomes or charging exorbitant fees without delivering results.
Conclusion:
The IRS Offer in Compromise program serves as a viable alternative for taxpayers facing substantial IRS tax debt. Engaging with qualified tax professionals or IRS Tax Attorneys can provide invaluable guidance, ensuring that taxpayers navigate the process effectively and explore viable options tailored to their financial circ*mstances.
For personalized advice, consulting a tax professional or attorney is recommended to assess eligibility, evaluate potential benefits, and navigate the intricate nuances of the Offer in Compromise program.
