IRS Offers In Compromise
Offer In Compromise - IRS Form 656 Offers
In their attempts to avoid collection actions, many people hire representatives to help them negotiate with the IRS over tax debts . They only find out that they never qualified for an IRS offer in compromise. There are taxpayers who send in a letter of compromise, requesting that penalties and interest be reduced because of "hardship". That is not the forum for penalty removal. If you are looking for penalty removal, please see my section on penalties if you want to request penalty removal. The Offer In Compromise program is unique as to its requirements. An offer in compromise can be established after you obtain a payment plan.
When filing your offer in compromise, there are three reasons you can choose from. They allow you to settle your taxes for less than the total liability owed. This tax settlement program may be the relief or income tax resolution you desire.
Offer In Compromise - Doubt As To Liability
The first reason is doubt as to liability (you doubt that you owe the taxes and think that the IRS will have trouble proving it).
Offer In Compromise - Doubt As To Ability To Pay
The second reason is doubt as to your ability to pay the taxes owed. Your financial statements show that after living expenses, not much is left over.
Offer In Compromise - Effective Tax Administration
There is a third case where taking your assets will create an undue hardship. However, many cases are filed based on the doubt as to ability to pay reason.
Offer In Compromise - Guidelines For Allowable Living Standards
The IRS uses a two part formula. It's income, less allowable expenses (use the IRS allowable expense chart). Your result is the amount the IRS says you are able to pay each month after your "necessary living expenses". Then multiply this number by approx. sixty. Next, add it to the equity (that is how much you keep after you sold the item at a bargain price) in each of your assets. For example... add the equity in your house, car, retirement plan, rental property, stocks, etc. to sixty times the monthly amount. The result is the total amount the IRS expects you to pay. Or if you can pay it out over two years (maybe more) with interest added, you have that choice too. The offer amount is subject to the IRS's opinion of your asset values, and the expense allowances the IRS will give you when computing how much money you have available to pay monthly. The good news is that a knowledgeable and experienced professional in offer in compromises can convince the IRS to use values in the taxpayer's favor. We have gotten IRS offers accepted after they were denied in several situations.
Hire An Experienced Professional To Settle Your Taxes When Dealing
With The IRS Offer In Compromise Program
The tax benefits of paying an experienced professional will always outweigh the costs. This is assuming you qualify for the offer in the first place. Do not shop for the lowest fees. It does not take an extraordinary amount of time to complete the offer forms. You professional fees are for experienced negotiation time. We have been involved in cases where collection action was taken prior to concluding the offer in compromise. If you are going to file an offer in compromise for a corporation, please call us right away. You will probably overpay your taxes if you actually file an offer for a corporation. As for settling your offer in compromise for "pennies on the dollar", without having done the above analysis, do not believe it! The amount that offers are settled for depends on the income, expenses and assets of the taxpayer. An experienced representative will argue for a lower payment, but showing you a statistic that says "Mrs. Davis owed 1 Million dollars and settled the liability for $300" doesn't say how good the representative was. Maybe the taxpayer didn't have assets and wasn't able to produce income! "DON'T BELIEVE THE HYPE"!
Solution...
Obtain a consultation with an experienced and knowledgeable representative who works for a professionally licensed company. Someone who at least represents a few new taxpayers before the offer in compromise division each month. It takes 5 minutes to 20 minutes to figure out if someone qualifies. They can based on a be combination of doubt as to liability and doubt as to ability to pay. One should get an evaluation of the current status of your payment plan from the IRS. Many people we know think they have a "binding" agreement" with the IRS, when in fact they don't. They find it hard to accept the fact that they may have wasted a lot of time and money. Wake up! Your money and property are at stake.
NEW OFFER IN COMPROMISE POLICY - Offers now have to have 20% of the offer amount submitted with the offer in compromise, 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.
Your Offer In Compromise Can Stop Collection Action. But... It Must Be Assigned To An Offer Specialist
"Processable" Offers
An Offer In Compromise must be first accepted by an IRS offer administrative person, before it is assigned to an offer specialist. If any items are missing, such as the fee for the offer, or if certain items on the forms are not filled out correctly, the offer will be returned. Correct the errors and then submit the offer again.
Offer In Compromise Specialist
Once the offer gets past the administrative area, it will be assigned to the person responsible for reviewing the offer in detail. The IRS specialist usually requests for additional receipts to verify the amounts claimed on the forms. When the assignment is made, all collection action pertaining to the periods listed in the offer is suspended. It's very important that the "record of account" the IRS has on the taxpayer(s) is pulled. You need to check all outstanding tax periods that are owed. Why? Liabilities for any periods not listed in the offer are still subject to collection action by the IRS.
Offer In Compromise - Non-Liable Parties - Form 656-A & 656-B
The Internal Revenue Service 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.
Offer In Compromise - Dissipated Assets And Doubt As To Ability To Pay
This is an excellent way for the IRS to add more income to your offer. The IRS purpose of an offer based on "doubt as to ability to pay" was to see how much they can collect from you over the next approx. 5 years. Payment periods for paying your offer amount can run till 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. Dissipated assets are assets that were in your possession and were sold or otherwise transferred to someone else. 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. I had a case where the taxpayer gave a house worth $19,000 to his mom to be used as her residence, six years before filing the offer. The offer division added $19,000 to the offer amount calculated from the two part formula I discussed!
Offer in Compromise - Don't Break It After They Finally Accept 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 when they file their next 1040 personal tax return. This applies to any tax liability of the part obtaining the offer.
Please call us at 713-774-4467 so we can discuss your best possible solution to your IRS issues!