Tax Debt Relief - Settle For Less!!!
OFFER IN COMPROMISE
SETTLING FOR LESS THEN YOU OWE
An Offer In Compromise could result in the settlement of your IRS tax debt for much less then you owe. However, very few situations warrant an acceptance of your "offer" by the IRS. This tax settlement is not for everybody and few people qualify for such a settlement. To settle your tax debt for "pennies on the dollar" is quite rare. There are many unscrupulous tax debt resolution companies claiming such settlements. In order for the IRS to accept your offer, you must qualify. Qualifying requires that there is either a serious doubt as to whether or not you owe the taxes assessed [doubt as to liability] or that you cannot pay the tax in full within a specified amount of time [doubt as to collectibility] or that it would be inequitable to impose undue harm on you [effective tax administration]. The facts and circumstances of your particular situation must be proven through proper supporting documentation which the IRS will request from you.
The three types of Offers In Compromise are:
.Doubt as to Collectibility
.Doubt as to Liability
.Effective Tax Administration
The most common type of Offer In Compromise is one based on collectibility. Collectibility depends upon your individual facts and circumstances. It is difficult to determine without obtaining personal and financial information from you whether or not you qualify for an offer based on collectibility. The IRS takes into consideration such factors as your age, health, future earning potential, the assets you can sell, possible lines of credit and your borrowing potential. Additionally, the IRS will consider the number of years left on the collection statute, and whether or not you are in compliance. Your personal and financial situation will be investigated. You will be required to complete, sign and date a collection information statement, Form 433-A for an individual and Form 433-B for a business.
IRS will require that you complete certain documents that provide information on your ASSETS and LIABILITIES as well as your INCOME and EXPENSES. The IRS will allow for certain "reasonable" living expenses. All the information you provide must be substantiated with proper documentation.
If you qualify, then there is a far greater chance that you will have your offer accepted by the IRS. If you don't qualify, however, there are many other options available to assist you in paying your IRS tax debt. Such options include, but are not limited to, payment in full and payment in installments. Some options are the "streamlined installment agreement", the negotiated installment agreement and, if you are insolvent and experiencing a hardship there is the Currently Not Collectible Status.
If you have evidence that you do NOT owe the taxes assessed because at the time that IRS assessed the tax you had substantiation which was not reviewed or additional deductions you did not present during the investigation but currently do have which should be considered, then you may qualify for an Offer based on doubt as to liability.
How is an Offer In Compromise Calculated?
IRS uses a complex formula part of which takes into account the equity in your assets and your projected future income. The formula also includes such factors as your age, whether or not you are disabled and if you need your assets to provide you with sufficient income to live on.
You will be required to complete Form 656 "Offer In Compromise"as well as complete Collection Information Statement, Form 433-A and/or Form 433-B. For details on the Offer In Compromise refer to Form 656-B. These forms can be obtained through the IRS website. See the "links" section of this website for the IRS website.
If the IRS believes that the liability can be paid in full as a lump sum or through payment arrangements, it will not accept the offer. The amount offered by the taxpayer should be equal to or greater than the reasonable collection potential (RCP). This means that the IRS takes into account what can be collected through the taxpayer's assets such as real property, automobiles, bank accounts, and other property. It also includes anticipated future income, less certain amounts allowed for basic living expenses.
The IRS is not bound by either the offer amount or the terms proposed by the taxpayer. The OIC investigator may negotiate a different offer amount and terms, when appropriate. The investigator may determine that the proposed offer amount is too low or the payment terms are too protracted to recommend acceptance. In this situation, the OIC investigator may advise the taxpayer as to what larger amount or different terms would likely be recommended for acceptance.
Worksheet to Calculate an Offer
Form 656-B contains the Worksheet to Calculate an Offer Amount
How Long Does an Offer Take to be Approved?
An Offer In Compromise can take several months and up to one year.
How Much Does it Cost?
Nationwide fees for the Offer In Compromise vary. Typically, the Offer In Compromise costs between $3,500 and $4,000. However, fees can range range upwards to $8,000. Fees may vary among tax professionals such as CPAs, attorneys and Enrolled Agents. Attorney's fees are generally the highest. I charge a $1,200 flat fee plus the additional cost of tax preparation and out of pocket expenses such as photocopying, shipping and handling.
What Information Will You Be Required to Provide?
You will be required to provide your sources of income, personal bank accounts, investments, retirement assets, available credit, life insurance and a list of your assets and the equity. In addition to your income and assets, you will be required to provide information on your expenses and liabilities.
Sources of income (Examples)
- wages - earnings statements, pay stubs
- pensions, annuities
- social security
- sales records
- Trust Funds
- business receipts
Bank Accounts, Investments and Life Insurance
- statements for all money market accounts
- statements for all brokerage accounts
- statements for checking and savings accounts
- certificates of deposit
- life insurance policies with a cash value
Reasonable Collection Potential
The reasonable collection potential is the amount of money the IRS thinks they can collect from you. This is calculated based on a period of 4 or 5 years. It depends upon such things as the value of your assets and the amount of your monthly disposable income over this 4 or 5 year period. You must offer the IRS an amount of money that is at least equal to, or greater than, your reasonable collection potential for the Offer in Compromise.
You do NOT need to hire expensive representation. Be aware of promotors that claim that tax debts can be settled for "pennies on the dollar". There are many unscrupulous promotors that charge high fees and mislead you. While their websites might provide information, they do not have any secret formulas. What information they provide is also readily available through the IRS website.
Be aware that you do not need legal representation to do an Offer In Compromise. Note that you can do your own Offer In Compromise. It is advisable to do some preliminary research of your own using the resources provided to you by the Internal Revenue Service prior to hiring the services of a professional or prior to attempting it on your own. Some firms will charge high fees while others do not. Yet, the results are often the same.
Colleen E. Harrison, Enrolled Agent (EA)
Colleen E. Harrison, Enrolled Agent and
former IRS Revenue Agent having over 17 years of IRS examination experience as a Revenue Agent.
I have personally investigated, when employed by the IRS as a Revenue Agent, the Offer In Compromise based on "doubt as to liability". Rarely were there any cases wherein the IRS was incorrect. However, it does happen on occasion. If you want an expert who has a great deal of experience with the Offer In Compromise, contact me at my email address: email@example.com
or call me on my telephone number which is (480) 292-7604.
The following is information I obtained from the IRS website on February 11, 2014. This is provided as an update.
Offer in Compromise
An offer in compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can't pay your full tax liability, or doing so creates a financial hardship. We consider your unique set of facts and circumstances:
- Ability to pay;
- Expenses; and
- Asset equity.
We generally approve an offer in compromise when the amount offered represents the most we can expect to collect within a reasonable period of time. Explore all other payment options before submitting an offer in compromise. The Offer in Compromise program is not for everyone.
If you hire a tax professional to help you file an offer, be sure to check his or her qualifications. Make sure you are eligible. Before we can consider your offer, you must be current with all filing and payment requirements. You are not eligible if you are in an open bankruptcy proceeding. Use the Offer in Compromise Pre-Qualifier
to confirm your eligibility and prepare a preliminary proposal. Submit your offer. You'll find step-by-step instructions and all the forms for submitting an offer in the Offer in Compromise Booklet, Form 656-B
(PDF). Your completed offer package will include:
- Form 433-A (OIC) (individuals) or 433-B (OIC) (businesses) and all required documentation as specified on the forms;
- Form 656(s) - individual and business tax debt (Corporation/ LLC/ Partnership) must be submitted on separate Form 656;
- $186 application fee (non-refundable); and
- Initial payment (non-refundable) for each Form 656.
Select a payment optionYour initial payment will vary based on your offer and the payment option you choose:
- Lump Sum Cash: Submit an initial payment of 20 percent of the total offer amount with your application. Wait for written acceptance, then pay the remaining balance of the offer in five or fewer payments.
- Periodic Payment: Submit your initial payment with your application. Continue to pay the remaining balance in monthly installments while the IRS considers your offer. If accepted, continue to pay monthly until it is paid in full.
If you meet the Low Income Certification guidelines, you do not have to send the application fee or the initial payment and you will not need to make monthly installments during the evaluation of your offer. See your application package for details.Understand the processWhile your offer is being evaluated:
- Your non-refundable payments and fees will be applied to the tax liability (you may designate payments to a specific tax year and tax debt);
- A Notice of Federal Tax Lien may be filed;
- Other collection activities are suspended;
- The legal assessment and collection period is extended;
- Make all required payments associated with your offer;
- You are not required to make payments on an existing installment agreement; and
- Your offer is automatically accepted if the IRS does not make a determination within two years of the IRS receipt date.
- You must meet all the Offer Terms listed in Section 8 of Form 656, including filing all required tax returns and making all payments;
- Any refunds due within the calendar year in which your offer is accepted will be applied to your tax debt;
- Federal tax liens are not released until your offer terms are satisfied; and
- Certain offer information is available for public review at designated IRS offices.