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Federal taxes: Offers in compromise

by | Jun 28, 2022 | Taxes

Few mailings strike more fear in the hearts of taxpayers than a notice from the IRS that taxes are due. When a balance is owed, immediate attention to the IRS notice could resolve what could be otherwise unnecessary anguish. While the task may seem daunting, an experienced professional can properly lead you through the process and may save you interest, penalties and other financial problems, such as wage and refund garnishment, liens, seizures and audits.

While several options exist, such as payment, installment payments and appeals, the IRS will consider an Offer in Compromise under appropriate circumstances. However, you need to be prepared to abide by the IRS rules. An improperly submitted Offer may be summarily rejected and the sums submitted with the Offer will be applied to your tax debt, rather than returned to you.

The process begins with a determination of whether you are eligible to make an offer. You must be current for the last six years in the filing of your tax returns and must be current with any estimated tax payments and withholding taxes for the current year. You must also not be in bankruptcy. If you are not in compliance, we need to discuss procedures to get you current.

Once you are current in your filings, it is time to assess what you owe. You can rely on the returns you filed, but the IRS may have its own assessment of where you stand. Most offers therefore start with determining what the IRS states is owed.

The next step is to see if a compromise will work. The most common reason the IRS will discuss a compromise with you is if there is some doubt as to the collectability of the full amount you owe. Your burden is to demonstrate to the IRS that your resources are limited and therefore you cannot possibly pay the full amount owed in a reasonable period. For the IRS, a bird in the hand is worth two in the bush.

The IRS requires an extensive amount of information from you to convince it that you fit the bill. It will require information regarding your income, expenses and assets from both you personally (and your spouse even if he or she does not owe the taxes) and any businesses in which you may be involve. You are requesting a favor from the IRS, so it insists that you make the request its way. You cannot just throw information at the problem. The information must be presented in a manner which is convincing to the IRS.

Once the information is analyzed, a proper offer can be made if the taxpayer is eligible. If any flaws exist that could allow the agent to reject your application, the application is returned. The fees and deposit are not returned, however, but instead applied to your outstanding balance. This is not a desired result after such an extensive effort. The consideration process can take the IRS at least 6 to 9 months. The statute limiting the IRS’s ability to collect the tax is paused during this consideration. Thus, if the application is rejected, the IRS has more time to collect from you in its more traditional ways.

While the IRS will consider applications from individuals prepared by themselves, you can also rewire your home without a professional, although the results may not be as desired. Contact us if you want to sit down and explore your options to properly resolve this problem. We give second chances here on Second Street.

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