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Offer in Compromise

 
 

Do You Qualify for an Offer in Compromise?

 

Merely wanting to Compromise your tax debt with the IRS is not enough. The IRS has strict standards for qualification and only a small percentage of Offers are accepted. Be cautious of other Firms' claims that tax debts can be settled for "pennies on the dollar". Particularly, those who make such claims after a short phone call. TV promoters make money by inappropriately counseling indebted taxpayers to file an application for an offer in compromise with the IRS promising unrealistic results. To determine qualification it is necessary to evaluate many factors including but not limited to:

  • Collection Statute Expiration Date(s)

  • Aggregate Tax Balance

  • Type of Tax

  • Actual vs IRS-allowed Expenses

  • Asset Quick Sale Values

  • Dissipated Assets

  • Retired Debt

  • Criminal or Civil Assessments (Public Policy)


To qualify for an Offer in Compromise you must show the IRS that one of the following conditions exists:

  • Doubt as to Liability - Doubt exists that the assessed tax is correct.

  • Doubt as to Collectibility - I have insufficient assets and income to pay the full amount.

  • Exceptional Circumstances (Effective Tax Administration) - I owe this amount and have sufficient assets to pay the full amount, but due to my exceptional circumstances, requiring full payment would cause an economic hardship or would be unfair and inequitable.

Other Considerations You Must Know To Qualify For An Offer in Compromise

  • Individual taxpayer(s) must be in compliance with previous tax years filings. Business must be in compliance with their last 2 quarters tax deposits.  If you are not (in compliance), we can prepare them for you.

  • Agree to the Conditions of an Offer in Compromise.

  • You are not currently in bankruptcy.

  • You cannot full pay to balance of the tax debt under the installment agreement rules.

What are the benefits of filing an Offer in Compromise with the IRS?

  • ALL IRS tax debts are settled

  • ALL Federal Tax Liens are released upon acceptance and full payment of the Offer

  • Generally all collection action ceases while Offer process is pending. For example, bank levies, wage garnishments and property seizure.  However, in most cases, the IRS will file a Notice of Federal Tax Lien to protect their rights.

How Much Should You Offer?

 

According to the IRS, the minimum Offer amount must generally be equal to (or greater than) the taxpayer's reasonable collection potential (RCP). The reasonable collection potential is defined as the total of the taxpayer's realizable value in real and personal assets, plus his/her future income, minus reasonable living expenses. 

Note: Unless the taxpayer files an Offer in Compromise Claiming special circumstances, the offered amount must equal or exceed the reasonable collection potential. Realizable value is the asset's quick sale value (amount which could be reasonably expected through the sale of the asset) minus what the taxpayer owes to a secured creditor.

If special circumstances exist, the IRS may accept an Offer of less than the total reasonable collection potential. The IRS will consider two special circumstances: (1) payment of the total reasonable collection potential would cause the taxpayer economic hardship; or (2) compelling public policy or equity factors support accepting an amount less than reasonable collection potential.

 

How long does the Offer in Compromise process take?

 

An Offer in Compromise is the most comprehensive and time consuming investigation a taxpayer will experience with the Collection Division of the IRS. Generally the Offer process takes 6 to 12 months.

An Offer in Compromise application may now be returned, or rejected, based on the following criteria:

  • Taxpayer resubmits an Offer in Compromise that is not materially different from a previous Offer that was either previously rejected with appeal rights or returned. The resubmission reflects an amount that is substantially similar to, the same, or less than the prior Offer without a material difference in the taxpayer’s financial situation or appearance of special circumstances.

  • Taxpayer resubmits an Offer in Compromise within one year of having defaulted and received a termination letter. The taxpayer has failed to resolve the previous default situation and the new submission is substantially similar to, the same, or less than the prior Offer without there being a change in the taxpayer’s financial situation or special circumstances.

  • An Offer in Compromise is filed solely to delay enforcement actions after a collection employee has determined and communicated to the taxpayer the intent to enforce collection through levy or seizure. The taxpayer has a clear and present ability to pay substantially more than the Offer amount and special circumstances do not exist.

  • An Offer in Compromise will be returned during the investigation if the taxpayer does not demonstrate compliance with estimated tax payments and fails and/or neglects to make the required estimated tax payment(s).

If you do not qualify for an Offer in Compromise a viable alternative may be an Installment Agreement or Penalty Relief.

Get immediate help with an Offer in Compromise by contacting us toll free at 877-426-3121 for a Consultation.  Or fill in the following form to request a confidential tax analysis. Online Form

 

   

 

 

 

 

 

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