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Offer in Compromise
Negotiating an Offer for a Substantially Reduced Settlement
What is an Offer in Compromise?
As America’s premier tax relief consultants we regularly get asked “what is an offer in compromise? Is it really “pennies on a dollar”? Can this debilitating debt magically vanish overnight?”. Our replies always start with the familiar phrase: “It’s not that simple.”
Taxpayers who can’t pay their tax burdens in full may opt for an Offer in Compromise, where you can settle with the IRS or State tax authorities for a substantially less than the tax amount owed. It is not always “pennies on the dollar”, contrary to what many advertisements state. Your eligibility purely depends on your financial information. Financial inability to pay is usually the reason most Offers in Compromise are accepted.
Offers in compromise are only available to eligible taxpayers. Taxpayers can find out if they are eligible for this program by consulting the Offer in Compromise Pre-Qualifier questionnaire online.
We must prove that you do not have the ability to pay back the taxes within the Collection Statute Expiration Date. If you owe a large balance, there still might be an option even if you are not living paycheck-to-paycheck and have some assets. You may not have the assets you could sell to pay off the back taxes in full, and you do not have sufficient income to pay back the back taxes over time.
There are requirements to submitting an Offer in Compromise. The IRS will not process or accept an Offer in Compromise unless the taxpayer is current on the filing and payment of taxes. Not only must the taxpayer be current, but the taxpayer must stay current for the next five years if the Offer is accepted.
If there are delinquent tax returns, the tax returns should be filed before the Offer is submitted to the IRS. In addition for lump-sum Offers in Compromise, a payment equal to 20% of the Offer must be made. For periodic payment Offers in Compromise, the taxpayer must make periodic payments based on the taxpayer’s own payment schedule.
These payments are nonrefundable if the Offer is rejected. If the Offer is rejected, the taxpayer has the right to appeal the rejection to the Appeals Office. While this requires additional time and expense, many rejected Offers are ultimately accepted by the Appeals Office.
Doubt as to liability
Those who file an Offer in Compromise under Doubt as to liability (or DATL) claim, will have to prove in court that they never had a chance to dispute the assessment. On the other hand, if the IRS is able to prove that the taxpayer received the proper notices of liabilities or was audited, no compromise will occur. Under the DATL claim, you don’t have to disclose all your financial information.
Doubt as to collectibility
Those who file an Offer in Compromise under Doubt as to collectibility (or DATC) claim will have to establish that they lack the means to pay. If proven, the IRS will consider a settlement based on a fixed math formula involving disposable income. The IRS considers many urgent or inevitable expenses disposable income such as a child’s college tuition or credit card payments.
When it comes to getting a State Offer in Compromise accepted, there can be additional variables. For example, the California Franchise Tax Board considers your age in addition to your financial circumstances. On the other hand, the chance of getting a Michigan Offer in Compromise is much higher than for other states. Our tax resolution firm can help people with tax problems wherever they are, nationwide.
How We Help You Get an Offer in Compromise
Our task is to conduct this process for you. We’ll be the ones professionally negotiating with the IRS on your behalf to settle your taxes for the lowest amount possible. Should you qualify for an Offer in Compromise, it provides a great benefit because it closes the taxpayer’s entire tax liability for the period covered. Please call or contact us if you would like to discuss whether you would be eligible for submitting an Offer in Compromise to the IRS and/or state.
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