Settle your tax debt for less. Pennies on the dollar. Negotiate your debt for thousands less than you owe.
You owe taxes and now you are trying to figure out what to do. When reviewing options, you have probably heard these statements and guarantees in your life. Lots of TV and radio ads promise these things for people who owe back taxes. However, these promises are a lot of time empty and can just cause more headaches than they are worth. These ads are referencing Offer in Compromise (OIC), which can work for some, but not very many.
“You must live in a van, on public property, and not own the van to get an Offer in Compromise.”
While this is just hyperbole, there is some truth to the statement. The Offer in Compromise calculation is a deep dive into your financial life by the Internal Revenue Service or state taxing authority. If you own anything of value, that value will be part of your offer. Have land in a wooded area of the state stashed for a retirement getaway, well the value of that land is now part of your offer. Any artwork in your possession that may be worth more than $100, well that value is part of your offer. Have a 401(k) at your work? That is part of your offer. Starting to get the picture?
While for some taxpayers it may be worthwhile to submit an offer in compromise because they rent, have a car that is older and don’t have any retirement savings. Most people have something that will increase their offer more than they would like.
Additionally, the major thing people don’t realize with an OIC is that you have at the most 24 months to pay your offer off. Most think that it’s an extended payment plan and then the debt goes away. Unfortunately, that is not the case at all.
A Successful OIC Still Comes with Some Limitations
Now if you are successful with your offer, the IRS still has other ways of getting more money from you. If you are due a refund for the first tax return filed after your offer is accepted, the money automatically goes to the IRS. You must file all taxes must be filed on time and owe no tax balances by the filing deadline (typically April 15th) for the next five years after your offer is accepted. If you do owe during that five year period the entire tax debt is coming back on you, minus whatever offer payments you may have made.
There are certain circumstances that the IRS will consider when determining whether to grant your offer or not. These usually fall into two main categories: Doubt as to Collectability and Effective Tax Administration. These two are similar in that it basically means that there is little chance that the IRS will collect the full amount of tax due and accepting an OIC is the best way for them to get any portion of the tax debt quickly.
Figuring out the Value for an Offer in Compromise
An offer in compromise is mostly a numbers game between the IRS and the taxpayer. The IRS can request additional information regarding the tax years the debt is from and that can inflate what your offer would be as well. If you your offer ever goes over more than what you owe it will be rejected almost as soon as it lands on someone’s desk at the IRS.
It is important to discuss everything that an offer in compromise encompasses with a tax professional before deciding to submit one. It is a long and complicated process that you will want to know every aspect of before jumping in. The major settlement promised to you by the ads you hear or see only apply to select individuals. Come in for a free consultation to discuss if an OIC is right for you.
Arthur Rosatti, Esq. is a Florida licensed attorney authorized to represent clients with the Internal Revenue Service and the U.S. Tax Court. He has experience negotiating with various taxing agencies on behalf of individuals and companies. His goal is to help his clients ensure their tax debt is accurate and get them into the best plan possible to manage the debt. He understands an OIC is a great tool, but wants all his clients to understand the limitations of the program.