Offer In Compromise

Do you think an offer in compromise will reduce your tax liability to pennies on the dollar?

Unfortunately, many taxpayers are led to believe that if they hire certain IRS representation firms, the IRS will stop collection action and give them a settlement for a lot less than they owe. This is often not true. Many people contact our firm to help get the offer in compromises that their last representative failed to get. They are surprised to find out that they never qualified in the first place. Some people send hardship letters with their offer with a request to remove penalties. This is not the place to request penalty removal. The IRS offer program is very specific in its requirements. This site’s purpose is to educate you in the offering process. It should guide you to making the right choices for your situation.

An Offer may be established at any time you qualify. If you are already in a payment plan, you must continue to make payments.

Currently, you must select one of the three allowable circumstances for the IRS to use when considering an offer:

Doubt As To Liability – Offer

The first reason is doubt as to liability (you are in doubt that the whole liability is owed. You think the IRS will have a lot of trouble proving you owe the taxes).

Doubt As To Ability To Pay – Offer

The second reason is doubt in your ability to pay the tax liability you owe. You can prove that there is very little or nothing left after your allowable living expenses.

Effective Tax Administration – Offer

There is a third case where, even if you qualify, it will create a hardship if your assets are sold for partial payment of your taxes. Many offers are filed based one’s doubt in their ability to pay. This reason is usually for elderly or incapacitated people.

Guidelines For Allowable Living Standards

The formula the IRS uses has two parts. First, you take your total household income, then you subtract the expenses the IRS is willing to accept. These are mostly found on the IRS allowable expense chart. The difference is what the IRS will expect you to pay each month in a payment plan. The significance of an offer is that it will be part of the two-fact formula to determine your offer amount to pay. You will multiply this by 48, 60, or another number depending on how many months you will pay off the offer in. Then, add this to the equity in assets. Your equity in how much you will realize if you sold each asset. The total of both these numbers is the amount you will have to pay. There may be adjustments to this. You can consult the IRS Form 656 guide for exact instructions. Don’t forget that offers are at the discretion of the IRS. You may have to fight hard to get them to accept your income, expenses, and asset numbers. We are very knowledgeable and experienced at representing taxpayers before the IRS Offer In Compromises Division. We have even convinced the IRS to accept offers after denying them more than once.

When Using the Offer In Compromise Program: Hire A Knowledgeable, Experienced, Professionally Licensed CPA Firm

The tax saving benefits of paying an experienced CPA firm will be greater than the cost. Don’t shop around for the lowest price. It’s often better to do your own offer with a paid consultation than to hire a low-cost and inexperienced representative. They may cause your IRS situation to be worse. Using the IRS’s instructions to full out the offer forms is not a very difficult talk. You pay professional fees mainly for the experience to manage the case so that you get the best possible results. We know of many cases where the IRS levied the taxpayer before the offer in compromise was completed.

Considering An Offer for Your Corporation?

Please call us right away. Most people who file offers on corporations often overpay their offer amount and total taxes. We will argue for a lower payment while making sure there is no collection action taken against you. Do not fall for phony statistics. If someone’s website says something along the lines of, “Mrs. D owed 2 million dollars and settled the liability for $3,000,” this doesn’t say anything about the caliber of the representative. Mrs. D might have not had any assets or wasn’t able to earn income! “DON’T BELIEVE THE HYPE!”

Your Best Offer In Compromises – Solutions

Set up a consultation with a licensed professional firm. One that is knowledgeable and very experienced with IRS offers. Do not hire a firm that does IRS representation, fraud audits, certified financial statements, etc. In the last 10 years, it seems that most CPA’s and attorneys have added IRS representation to their list of services. Don’t fall for it. This type of work requires a specialist. We have very smart attorneys as clients. They can argue law in court very effectively and earn 7 figure annual salaries yet they hire us for our knowledge and experience in this area. We hope you will, too!

Offer In Compromises – Traps

Often, sales people will ask you a few quick questions. Then, they will tell you that you can do an offer. Do not believe it! It takes an experienced personal probably 5 minutes of more to ask very relevant questions. You also need to get an evaluation of your current payment plan status. Many people think they are in a “binding” agreement with the IRS, when, in fact, they are not! You don’t want to find out that you wasted a lot of time and money hiring a non-professionally licensed company.
NEW OFFER IN COMPROMISES POLICIES – Offers now have to have 20% of the offer amount submitted with the offer, or as an alternative , you can make the first monthly installment with the offer. The monthly payments must continue while the offer is being considered. If the offer is denied, all payments will be applied to the outstanding balance. There aren’t any refunds. There is an exception to this if you qualify for not making these payments at the application process.

Offer In CompromisesMust Be Assigned To An Offer Specialist In Order To Stop Collection Action

“Processable” Offers

Before it is assigned to an offer specialist, offer in compromises must be first accepted by a person in IRS offer administrative. The offer will be returned if any items, such as the fee for the offer, are missing, or if certain items on the forms aren’t filled out correctly. Submit the offer again after the errors are corrected.

Offer In Compromises – Specialist

The offer will be assigned to the person responsible for reviewing the offer in detail once it gets past the administrative area. To verify the amounts claimed on the forms, the IRS specialist usually requests for additional receipts. All collection action pertaining to the periods listed in the offer is suspended when the assignment is made. It’s very important that the “record of account” the IRS has on the taxpayer(s) is pulled. Any outstanding tax periods that are owed need to be checked. Why? Because liabilities for any periods not listed in the offer are still subject to collection action by the IRS.

Non-Liable Parties – Form 656-A & 656-B – Offer

The IRS Offer in Compromise division will examine the offers filed and will be able to determine the taxpayer’s ability to pay the tax liabilities. The taxpayer needs to fill out the 433a form to show the income and expense of the parties living in his household. If you cohabit with someone who doesn’t owe any of the tax that is part of your offer, the IRS needs the details of their income and living expenses. By signing the 433a form, these “non-liable” parties won’t be responsible for your taxes. However, they are responsible for stating their income and expenses correctly on the 433a form. Living with someone who makes more money than you do, can limit the tax forgiveness you are applying for by filing an offer in compromise. The offer division uses a separate form for splitting your incomes and expenses. Forms 656-A and 656-B exist for separating the instructions.

Dissipated Assets & Doubt In Ability To Pay

This is an excellent way for the IRS to add more income to your offer. The IRS’s purpose of an offer based on “doubt as to ability to pay” is to see how much they can collect from you over approximately the next five years. Payment periods for paying your offer amount can run until the end of the statute of limitations on collections for each of the years in the offer. The formula is based on the assets you have and your available monthly income. Assets that were in your possession and were sold, or otherwise transferred, to someone else are called dissipated assets. If you had any of these assets in the last approximately 6 years, and haven’t payed off any tax periods in the offer, the IRS will add back the value of the assets to the offer amount you have to pay. In one of my cases, the taxpayer gave a house worth $19,000 to his mother to be used as her residence; six years before filing the offer. Therefore, the offer division added $19,000 to the offer amount calculated from the two-part formula that I discussed earlier!

If Accepted, Do Not Break Your Offer

You have to follow the rules concerning timely filing and paying your taxes, according to the IRS “special” rules, as I’ve frequently discussed. The offer payments must also be made timely and for the correct amount. People will have their full tax liability reinstated, when a new tax liability is assessed, once they file their next 1040 personal tax return. This applies to any tax liability of the part obtaining the offer.

Need assistance with your Offer In Compromise? Please call us at 713-774-4467 so we can discuss your best possible solution to your IRS issues!

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