When someone owes a substantial amount to the IRS, it might be possible to settle the tax debt with an offer in compromise (OIC). Paying off your tax debt with an OIC may help you avoid serious consequences for keeping tax debt, including property liens, wage garnishment, and tax liens. Learn more about an offer in compromise in this article, and if you have questions about an IRS tax case, our Schaumburg offer in compromise attorney at North Suburban Legal Defense can assist you.
It can sound too good to be accurate, but it is not. The IRS’s logic in offering an OIC is that accepting a lesser amount is more cost-effective and efficient than going after a debtor. The IRS performs a cost-benefit analysis to decide if it can get more money from you by offering an OIC, setting up an installment agreement, or taking other collection actions. The IRS states that it generally ‘approves an OIC when the amount you offer represents the most we can expect to collect in a reasonable period of time.’
To qualify for an offer in compromise, you must show the following to the IRS:
In some situations, you could get an offer in compromise when there is uncertainty about the federal taxes owed. In most cases, you must put down 20% of the proposed settlement amount with the OIC. If the IRS accepts your offer, you usually have approximately two years to settle the lump sum.
There are two OIC programs. The first is the traditional offer in compromise, and the second is a streamlined version. With the conventional offer in compromise, there is no limit on your debt or income level. Instead, what qualifies you for the traditional OIC is the ability to make timely payments, your expenses, and the availability of assets in addition to income.
To qualify for the traditional program, you must be current on your tax returns, tax deposits or have made timely estimated tax payments for the year. You also cannot be in the process of declaring bankruptcy.
The streamlined OIC program offers more flexibility in the offers you can make to the tax authorities. Those who try to negotiate a streamlined OIC may receive fewer requests for financial documentation from the IRS. You also may communicate with the IRS by phone. To qualify, you must meet these requirements:
You are not required to use an attorney to make an OIC with the IRS. However, a tax attorney experienced with these offers can be an invaluable asset during the process. For example, your attorney can help you draft the proposal, collect financial documents that will increase the chances of approval, and complete the necessary paperwork.
It is critical to have all previous tax returns filed before you request an OIC; the IRS will not consider an offer if you have unfiled tax returns. Your attorney may base your offer in compromise on some or all of these factors:
Also, your attorney will review your financial situation and decide which basis is most appropriate and may raise the chance that the OIC will be accepted. Your attorney also can help you determine how much you should offer to pay and how you should schedule those payments. After all, many people who owe tax debt do not have the liquidity to pay everything at once.
Next, your attorney will assist you with filling out necessary tax and financial forms, write a statement to the IRS, and create an explanatory memorandum. These materials drafted and reviewed by your attorney will give the tax agency a complete picture of your situation and why you are making an offer in compromise.
Getting skilled legal assistance with your OIC can ensure that you give the IRS adequate proof and evidence that can avoid a rejection of the offer or follow-up requests for additional information.
Always remember that any offer in compromise can be rejected. To negotiate a successful offer, you must give the IRS the correct documentation proving an inability to pay the full tax debt owed. If you do not do this, the IRS can reject your offer, levy your bank account, or garnish your wages. Also, the IRS can put a lien on your property, making it only possible to sell after resolving the matter. The bottom line is you need to have the help of a skilled tax attorney to have all the evidence you need for a successful offer.
An offer in compromise could be just what you need to settle your tax debt and move forward with life. But negotiating and getting an OIC approved without an attorney’s help is difficult. Our Schaumburg offer in compromise attorney at North Suburban Legal Services can help for the best results, so call (312) 909-6089. There is no guarantee that the IRS will accept your OIC, but working with a skilled offer-in-compromise attorney increases the odds substantially.