Will an “Offer In Compromise” really work to Settle My Tax Debt?
These days, most troubled taxpayers who are actively looking for a way to resolve their IRS debt have seen TV commercials from large tax debt relief services claiming taxpayers who may have owed paid tens or hundreds of thousands of dollars settled their IRS debt by paying only “Pennies on the Dollar.” Reactions to these commercials by taxpayers vary from “Yeah Right…!,” to “Alright! How do I get that to happen for me?”
So is the OIC Program Fact or Fiction?
It is TRUE.. That said, the truth about “Pennies on the Dollar” is somewhat optimistic.
YES! Many taxpayers and many of my clients can, with skilled help, negotiate their tax debt by paying a fraction of their overwhelming tax bill using the Offer-in-Compromise program. The IRS has a very strict set of rules and a small percentage of taxpayers will actually qualify for the OIC program.
To further understand the Internal Revenue’s motivation behind the OIC program, it is important to remember that the IRS is not allowing a negotiated settlement because they are trying to improve their “harsh image,” or simply to be nice. Naw…, the IRS is accepting debt settlement offers for less than the amount owed because they fully understand that they will have to settle of “something” to get some of their money faster, and if they didn’t negotiate they would not otherwise be able to collect any funds at all.
To Qualify for an Offer In Compromise the taxpayer (or better yet, their tax attorney) must show either of the following:
Doubt of Collectability
– Doubt of collectability means the amount of tax liability is correct but the taxpayer will be unable to ever pay the full amount owed. There can be many reasons for this including the income earning ability, age, and health status of the taxpayer.
Doubt of Liabiltity
– Doubt of liability is simple – the taxpayer must show they do not owe the IRS the amount the IRS has assessed.
If a taxpayer cannot meet either of these OIC requirements, they should still consult a Tax attorney as there are other programs which they may qualify for to resolve their back tax debt.
Once a taxpayer has been shown to qualify for an OIC (Offer in Compromise) they must negotiate the amount owed – this amount must be an offer the IRS is willing to accept, and again the IRS has strict rules to determine this amount.
In general the amount owed will vary on speed the taxpayer’s ability to repay the debt. The quicker the repayment arrangement, the lower the settlement amount will be.
After the taxpayer and IRS have agreed to the amount the taxpayer will finally owe, the next step will be deciding how it will be paid. The Offer In Compromise has three different payment options available.
The cash offer
– The cash is paid in 5-monthly installments. It is based upon your monthly disposable income times 48 plus your assets. It does not matter how huge the debt that you owe the IRS, you will only pay the amount based on the 5 month plan because it is based solely upon your ability to pay.
The short term deferred offer
– The short term deferred offer is paid in 24-monthly installments. This offer is based upon your monthly disposable income times 60 plus your assets divided by 24.
The long term deferred offer
– the long term deferred offer is based upon the amount of time left on your collection statute of limitations. Basically, it is your monthly disposable income times the months remaining on your statute of limitations – which the IRS will inform you.
Once a taxpayer has made an Offer-In-Compromise settlement agreement it is critical they make their payments on time. Even one late payment can nullify the whole agreement and the taxpayer could once again be liable for the total amount owed before the offer was accepted.
If you are burdened with a huge tax debt and receiving threatening notices from the IRS contact a qualified tax attorney immediately to discuss your options. The longer you put off the decision to take a proactive step the more sleep you will lose, the more stress will affect your health, and the greater your debt will grow. We hear it all the time by phone, email and in person. It goes like this: “Counselor, I just wanted to call you to let you know that I slept peacefully for the first time in months after hiring you to deal with the government on our behalf…”
Your tax debt happened for many reasons. There is no need to feel embarrassed nor anxious any longer. Take my advice… Call a tax lawyer as soon as possible.
|e-Mail Chris Cooke, Esq.||Map to Office|
|Call my office to schedule an appointment with me, San Diego Tax Attorney, Chris Cooke, Esq. My offices are open 9 am – 5 pm, Monday through Friday. Call (800) 235-0894|