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Offer in Compromise

Need a “Fresh Start?” An IRS Offer in Compromise may be the solution to your tax problems. An IRS Offer in Compromise is one of the most well-known tax resolution tools. Thanks to all of those television ads that scream “We can settle your IRS debt for pennies on the dollar.” Be careful, of these promises. As you know, if it sounds too good to be true it probably is. Don’t get me wrong, it is possible. But, the numbers are against you. You basically have to be almost poor to qualify. Nonetheless, an IRS Offer in Compromise can be a good way to get past your old tax problems. But, you must qualify. Unfortunately, not everyone qualifies. And, not everyone can afford the offer amount that the IRS would accept.

The good news is that the IRS now has more liberal guidelines. Financially distressed taxpayers can get the help they need. An opportunity to clear up your tax problems. But, be careful. You must make financial disclosures. The statements you make about your assets gives the IRS a good look at your finances. If your IRS Offer in Compromise is not accepted, the IRS has all the information it needs to accelerate the collection efforts against you. Plus, interest keeps accruing during the negotiation process.

Even so, an IRS Offer in Compromise may be the right solution for you. The IRS considers your current financial condition in determining whether you have the ability to pay. The IRS requires extensive financial documentation to “compromise” your tax liability. In addition, you need to comply with various rules, tax procedures and regulations. Your IRS Offer in Compromise may be approved if the government is unlikely to collect the liability owed in full. Plus, the amount offered in the settlement equals (at least) the amount that the IRS calculates it can collect. The reasonable collection potential is made based on your (1) equity in assets, and (2) disposable monthly income over the statutory period.

Example 1:
Jack owes $57,000 for unpaid tax liabilities. He agrees that the tax owed is correct. His monthly income does not meet his necessary living expenses. He does not own any real property. He does not have the ability to pay the liability in full now or through monthly installments.

Example 2:
Jane has assets sufficient to satisfy the liability in full and agrees that she owes the tax. But, she provides full time care for a dependent child who has a serious long term illness. Jane expects to use the equity in the assets to provide for adequate basic living expenses and medical care for the child. The IRS or State may negotiate the amount owed. If the IRS or State determines the proposed offer amount is too low an alternate amount may be recommended.

Tax Tip: Your bank accounts, retirement accounts, and investment accounts do not get counted dollar-for-dollar into your IRS Offer in Compromise amount. There are calculations specific to the investment type to determine the value to include in your Offer.