Offer In Compromise
What Is An Offer In Compromise?
An Offer in Compromise is one of the most highly advertised forms of tax relief. You may have seen commercials or radio ads of companies claiming to settle your tax debt for “pennies on the dollar.” So is this actually possible? And if it is possible, will I qualify?
The answer is yes that it is actually possible to settle your tax debt for less than you owe and an Offer in Compromise can be a very good form of relief for those that qualify. The IRS will accept an Offer in Compromise on three grounds:
1 .) Doubt As To Liability
2.) Doubt As To Collect-ability
3 .) For Effective Tax Administration
Let’s take a look below at each option and learn what each path presents for you:
IRS Offer In Compromise
Understanding The Grounds
- Doubt as to Liability: When there is a genuine dispute as to the actual debt you owe under the tax law.
- Doubt as to Collectibility: When your income, expenses, assets, and liabilities are such that you are in a financial hardship and the IRS has doubts as to collecting the full amount owed within the 10 year statute of limitations.
- For effective tax administration: This is a catch all when there is no doubt as to the amount you owe or to the ability of the IRS to collect the full amount owed but there are exceptional circumstances that would put you in a undue financial hardship or would be inequitable for another reason.
Offer and Compromise
Do I Qualify For An Offer In Compromise?
Depending on your particular situation you may or may not qualify for an Offer in Compromise. Things to consider are, how much tax debt you owe, your current monthly disposable income, your equity in all of your assets, your future earning potential, your age and health, and the reason for the Offer in Compromise. At J. David Tax Relief, our tax attorney can help guide you through your options to see which solution is best for you.
What are the Risks of an Offer in Compromise?
Understanding The Methods and Risks In Dealing With The IRS
Even if you qualify for an Offer in Compromise, there are risks associated with it. Here are the risks. It takes the IRS on average of about 6 months to accept or deny an offer. There are 2 ways of submitting an Offer In Compromise
First Way: Lump Sum Cash Offer
First is the “lump sum cash cash offer” which is payable in 5 or fewer monthly installments once the offer is accepted. With the Offer you must submit 20% of the total amount you are offering with the application form 656. If the IRS rejects your offer, they keep the 20% that you paid.
Second Way: Periodic Payment
The other method is the “periodic payment offer” in which you must pay the total amount offer in 6 monthly installments over a period of 24 months or less. With this method you must also submit 20% of your total amount offered with your application and while the IRS is deciding whether to accept your offer you still must be making your installment payments as if the Offer was accepted but before knowing whether it will be accepted or not. If the IRS rejects your offer they still keep all of the amounts paid in installments.
Third Way: Paying On Time
The last risk is that if your offer is accepted you must make ALL of your installment payments ON TIME. If you make one late, the IRS can default the entire Offer in Compromise, keep all of the money you have paid, and begin collection activity all over again such as, wage garnishment, bank levy, federal tax lien, and asset seizure!
IRS Offer In Compromise
What are the odds the IRS will accept my Offer?
Your odds of having a successful offer are based on many variables. Less than half of the Offers submitted to the IRS are accepted. Call or contact us for a free consultation and we can determine if this is a good option for you.