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Applying for an offer is simple, yet I know of dozens of people who have paid for representation, only to find out that they never qualified for an offer in the first place. Some people send in a letter of compromise, requesting that penalties and interest be reduced because of "hardship". Please see my section on penalties if you want to request penalty removal. The Offer In Compromise program is unique as to its offer requirements. And yes, an offer can be entered into after you establish a payment plan. Here's the scoop...
There are three reasons for filing offers. Each one allows you to settle your tax liabilities for less than the total amount owed. This tax settlement program may be the tax resolution or relief you are looking for.
IRS Offer In Compromise - Doubt As To Liability
The first reason is doubt as to liability (there is doubt as to whether you owe the taxes and feel that the IRS will have difficulty proving it). Our offer in compromise back taxes page can help you with any questions regarding proving your liability.
Offer In Compromise - Doubt As To Ability To Pay
The second reason is doubt as to your ability to pay the taxes owed given your current circumstances.
There is a new third special case where taking your assets will create an undue hardship. Most cases by far are filed based on doubt as to ability to pay.
Offer In Compromise - Guidelines For Allowable Living IRS Standards
The IRS uses a two part formula. Take your income, less allowable expenses (you need the IRS allowable expense chart for this). Your result is the amount they feel you can pay each month after paying your "necessary living expenses". Then multiply this number by fifty. Next add it to the equity (that is how much you pocket for yourself if you sold the item at a bargain sale) in each of your assets. For example... add the equity in your house, car, retirement plan, rental property, stocks, etc. to fifty times the monthly amount. The result is the total amount the IRS expects from you now in a lump sum. Or if you can pay it out over two years (maybe more) with interest added, you can do that instead. This calculation is subject to the IRS's opinion of the value of your assets, and the allowances they will give you when computing how much money you have available to pay monthly. The good news is that a knowledgeable and experienced professional in this area can convince the offer division to use values more in the taxpayer's favor. I can also get IRS offers accepted after they were turned down more than once before.
Hire An Experienced Professional To Settle Your Taxes Using The IRS Offer In Compromise Program
The benefits of paying professional fees will always outweigh the costs, assuming you qualify. This is not an area to price shop. You get what you pay for. It does not take a lot of time to fill out the forms involved. You pay for experienced negotiation time. We have been involved in cases where collection action was taken prior to concluding the offer. If you are going to file offers for any corporation, please talk to me first. You most likely will overpay if you do not. Oh, if someone tells you that they will settle your offer for "pennies on the dollar", without having done the above analysis, run the other way! The amount that offers are settled for depends on the income, expenses and assets of the taxpayer, not how good the representative is. Sure a good representative will argue for a lower payment, but showing you a statistic that says "Mr. X owed 1 Million dollars and I settled for 0? doesn't tell you how good the representative was. Maybe the client had no assets and wasn't able to produce income! Again, "DON'T BELIEVE THE HYPE"! The IRS will investigate the legitimacy of an offer in compromise and only an experienced professional can prove such things as payroll taxes trust funds and retired debt.
Obtain a consultation with a very knowledgeable and experienced professional who personally works on at least a few types of offers per month. It should only take 5 minutes to 30 minutes to determine if you qualify. Sometimes they are based on a combination of doubt as to liability as well as doubt as to ability to pay. Obtain an evaluation of the current status of your payment plan with the IRS. The majority of people I speak to think they have a "binding" agreement with the IRS, when in fact they do not. They find it difficult to accept the fact that they may have spent a lot of time and money for nothing. Wake up! Your money and property are at risk here. NEW OFFER IN COMPROMISE POLICY - All offers now have to have 20% of the offer amount submitted with the offer, or make the first monthly installment with the offer. The monthly payments must continue while the offer is being considered. If the offer is turned down, all payments are applied to the outstanding balance. No refunds. There is an exception to this if you qualify to not make these payments ahead of time.
Your Offer In Compromise Can Stop Collection Action Once It Is Assigned To An Offer Specialist
An Offer must be first accepted by the Offer administrative person, before it is assigned to an offer specialist. If your payment fee, or other items are missing, or if certain items on the forms are not filled out correctly, the offer will be returned. You should then correct what is wrong and resubmit the offer. The offer in compromise process has to be done correctly and efficiently.
Offer In Compromise Specialist
Once the offer gets past the administrative area, it will be assigned to the person responsible for reviewing the forms in detail. Additional receipts are often requested to verify the amounts claimed on the forms. When the assignment is made, all collection action pertaining to the periods listed in the offer is suspended. Liabilities not listed are still subject to collection action. It's very important that the "record of account" the IRS has on the taxpayer(s) is pulled to check all outstanding taxes owed.
Offer In Compromise - Non-Liable Parties - Form 656-A & 656-B
Offers filed at the Internal Revenue Service Offer in Compromise division will be examined to determine the taxpayer's ability to pay the tax liabilities. The 433a form must be filled out showing the income and expense of the parties living in the taxpayer's household. So even if you live with someone who does not owe any of the tax that is the subject of the offer you are filing, the IRS needs to know their income. These non-liable parties will never be responsible for your taxes by signing the 433a. They are responsible for correctly stating their income and expenses on the form. Living with someone who makes more money than you do, can greatly limit the tax reduction that you are seeking by filing an offer. The offer division has a form for splitting your income that you can use. There is now a form 656-A and 656-B separating the instructions.
Offer In Compromise - Dissipated Assets And Doubt As To Ability To Pay
This is a great way for the offer division to add additional income to your offer. The original purpose of an offer based on "doubt as to ability to pay" was to see how much they can collect from you over the next 5 years or so. Offer payment periods can run till the end of the statute of limitations on collections for the years in question. The formula is based on the assets you have, and your available monthly income. Dissipated assets are assets that were in your hands and were sold or otherwise transferred. If you had any in the last approximately 6 years, and didn't pay any tax liabilities you had, past or present, the IRS will add back the value of the assets to the amount you have to pay. I had a case where the taxpayer gave a house worth ,000 to his elderly mother to live in, six years prior to filing the offer. The offer division added ,000 to the offer amount calculated from the two part formula discussed above!
Offer in Compromise - Don't Break It After They Finally Accept Your Offer
You must follow all the rules about timely filing and paying your taxes, according to the IRS "special" rules, as I've discussed elsewhere on this site. Your offer payments must also be made timely and for the correct amount. I know of two former clients who had their full tax liability reinstated because of owing personal taxes when they filed their next 1040 personal tax return (offer in compromise personal income).
- If you are considering hiring us, call Joe Mastriano, CPA 713-774-4467.
- Think your IRS matter is handled? Think again!
- For your IRS Offer In Compromise analysis, click here to contact us.
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