Millions of American are facing financial difficulties and are looking for ways to reduce their IRS tax debt. The IRS Offer in Compromise program offers hope to some individuals and small businesses. If you are experiencing a financial hardship, retired, unemployed, have little or no assets and are in over your head in tax debt, you may qualify for an Offer in Compromise. Not everyone can have their tax debt reduced this way, but if you meet specific criteria you may qualify and be able to reduce your tax debt. Top analysts with Hillhurst Tax Group reported that the IRS will usually only approve 25% of taxpayers who apply for an offer in compromise. It is extremely important that you get help from an experienced tax relief specialist such as a tax attorney, CPA or enrolled agent who can help you through the process. The money spent for representation may be worth it if you are reducing $10,000 or more in debt since your tax liability continues to increase with penalties and interest on a daily basis.
Your first step is to determine whether you qualify or not. This can be accomplished by gathering all your financial data and determining the following:
1. How much disposable income do you have each month? (Income minus expenses)
2. What type of assets do you have and what is the realizable value of each asset?
3. How much available cash do you have in checking or savings accounts?
4. How much do you have in retirement savings?
5. Is there doubt as to whether the IRS can collect the tax liability?
6. Would full payment of the tax liability cause a financial hardship?
Once you determine that you may qualify for an Offer in Compromise, you must complete forms 433A and 656 (offer in compromise) along with copies of the last three months of bank statements, check stubs, vehicle registration and other documents to support your financial situation before going through the formal process of negotiating with the IRS. There is a $150 application fee to file form 656 and you must also include 20% of your offer with the paperwork. These fees can be waived if you fall under certain income guidelines. It may take up to 30 days to get a response and even longer to be assigned to an IRS OIC representative and start the process. There will be a complete investigation of your financial situation and assets. You must be truthful of all assets in your name including homes, boats, cars, bank accounts, investment accounts and even businesses in which you are a partner or owner. The IRS will look at the equity in your assets to determine if you can pay the liability by liquidating them. The IRS will also look at your financial situation over the last three months and all tax returns must be up to date.
Submitting the paperwork to the IRS is the first step to the process. You will be contacted once the OIC representative starts to work on your case. It is important that you don’t provide unnecessary information or don’t intentionally withhold necessary information. The OIC representative’s job is to ensure an accuracy of all information submitted and negotiate a settlement based on your financial situation and available assets. This process could take months and you may not be approved if the OIC representative can determine that you are able to pay back the debt either in full or through a payment plan. The whole process may be very time-consuming and require a lot a paperwork and backup documentation.
If the IRS does not approve your offer, you have disclosed information about your assets that enables them to accelerate their collection efforts. This is why it is extremely important to get help from someone who specializes in Offer in Compromise settlements. They can help you determine if you qualify up front before opening yourself up to more IRS collection efforts. Be aware of tax resolution specialist who takes your money before determining if you have a really good shot at getting approved. Although there is no 100% chance that any offer will be approved ahead of time without going through the proper steps and negotiation process, there is basic qualification that must be met before even considering the Offer in Compromise settlement. If you have assets with a lot of equity in them or quite a bit of disposable income, it is better to consider other options in working out your tax debt with the IRS.