We all have a responsibility to pay our taxes each year. But what happens when the amount you owe has spiraled out of control? What happens if you haven’t made payments in a timely manner and your financial circumstances have reached the point where your outstanding tax debt is beyond your ability to pay? If this is the case, your best option for resolving your IRS tax problem may be an Offer in Compromise.
The Purpose of an Offer in Compromise
The Offer in Compromise was created to allow taxpayers who are unable to pay the full amount of their tax debt, a way to negotiate a settlement that is in within their ability to pay, and at the same time provide the IRS with the ability to collect at least a portion of the amount that is owed to them. The process is complex and slow, as it typically takes 12 to 18 months to reach an agreement on the amount to be paid. Even so, it has certain advantages for both taxpayers and the IRS.
An Offer in Compromise generally allows for a resolution to be reached with the agreed-upon payment based on income and assets rather than the actual amount of the back tax debt. Though it may seem like a bad deal for the IRS, the agency ends up recovering more as a result of settling than it is likely to through enforced collection actions.
Understanding Your Offer in Compromise Options
Taxpayers interested in submitting an Offer in Compromise generally have three options available to them. They can assert they do not actually owe the tax debt that they are being charged with; or there are simply not enough assets or income to make full payment on the back tax debt within the remaining statute of limitations; or pursue a compromise based on either exceptional circumstances or economic hardship. This last option falls under the category of “effective tax administration” and is notable because the taxpayer does not claim they are unable to pay or don’t owe the tax. Taxpayers with significant health problems or the elderly may be candidates for this type of offer in compromise.
Applying for an Offer in Compromise
The offer process is time-consuming and complicated. It requires completing specific forms as well as extensive documentation and must be accurately prepared in accordance with IRS rules. When mistakes are made or forms are incomplete, the offer can be returned without the benefit of an appeal. To avoid these problems, it is strongly recommended that taxpayers hire experienced tax professionals, such as East Coast Tax Consulting Group, for both preparing their paperwork and negotiating with the IRS.
Not All Offer in Compromises are Approved
It is also important to remember that your request for an Offer in Compromise does not guarantee a successful result. Recent statistics show that the IRS accepts approximately 35% of submitted offers.
Working with a professional will provide you with reasonable expectations regarding the time the process will take and your chances of having your initial offer accepted. Keep in mind the IRS has 24 months to reach a decision, and it is not unusual for them to make a counteroffer when they believe they can collect more than the amount offered.
When evaluating your case, the IRS will likely give less consideration to the actual amount owed than the amount that you can pay. This determination will be made based on factors such as: income, assets, previous earnings capacity and anticipation of your earnings capacity in the future. Living expenses will also be taken into consideration.
The good news is that while the IRS is considering your offer, collection efforts will typically stop. This provides relief from stress for taxpayers who have fallen behind in their taxes and who are unable to catch up.
If you find yourself in this situation, contact East Coast Tax Consulting Group today to discuss your options. Our experienced and knowledgeable Boca Raton tax resolution professionals will help you understand, anticipate, and prepare for all aspects of the Offer in Compromise process. They will act as your advocate during negotiations with the IRS.