The IRS’s offer in compromise program can be a great way to reduce the amount of debt you owe and make your payments more manageable. After all, the program is mutually beneficial to you and the IRS—it allows you to negotiate a tax settlement for less than you owe and allows the IRS to collect a portion of the debt owed to them.
However, an offer in compromise is not a panacea for all tax debt issues and they come with a number of disadvantages. Below are some of the pros and cons of the program.
Pro #1: You Can Reduce the Amount of Debt You Owe
The most obvious benefit to the taxpayer of an offer in compromise is the opportunity to reduce the amount of debt he or she owes to the IRS. Using this method, you can negotiate your tax burden down to an amount that you can pay all at once or as a series of monthly payments. Offers in compromise can also forestall more aggressive collections activities like asset seizures.
Pro #2: The IRS Will End Collections Activities
If the IRS has already garnished your wages or otherwise seized some of your assets, an offer in compromise can end these activities. Once the IRS accepts your offer, you don’t need to worry about tax liens or levies.
Pro #3: You Can Resolve Longstanding Debts
For many taxpayers, the burden of tax debt increases over time, since interest and penalties continue to accrue every year. If you have been struggling with a tax debt burden for many years, an offer in compromise can allow you to finally pay off your debt and move forward with your life.
Con #1: Not Everyone Qualifies for an Offer in Compromise
The IRS imposes stringent qualification criteria on applicants submitting offers in compromise, including extensive documentation and tough scrutiny of your finances and possessions. As such, not all taxpayers are good candidates for them. Offers in compromise are based upon your ability to pay. Therefore, higher income taxpayers or taxpayers with significant equity in their assets generally will not qualify for an offer in compromise.
Con #2: You Forfeit Your Tax Benefits and Credits
While the IRS will allow taxpayers to lower the amount they owe through an offer in compromise, they will often require the applicant to forfeit their ability to deduct certain tax benefits in future years. These benefits include items such as carryover capital losses, net operating losses and tax credits that arose in prior years. If you count on these tax benefits to reduce your future tax liability, an offer in compromise may jeopardize them.
Con #3: Offers in Compromise are Matters of Public Record
It’s great news when the IRS accepts your offer in compromise, but, once it does so, it will be put on public record. If you prefer to keep your financial matters private (as most do), you will forfeit this privilege once the IRS accepts your offer.
Learn More About Our Boca Raton Tax Settlement Services Today
Offers in compromise come with a number of pros and cons, many of which are specific to the individual. If you would like to explore the possibility of making an offer in compromise to the IRS, call the tax consultants at East Coast Tax Consulting and ask for your free Boca Raton Tax Settlement Services consultation.