Tempted to finally look into settling your tax debt? It can work and now is a good time to take advantage of the IRS offer in compromise program. An offer in compromise acceptance by the IRS, however, is not automatic. It can be quite difficult and should be carefully approached. There is no specific magic formula to acceptance because every case is different.
If done properly, especially with the guidance of a tax attorney, the offer in compromise process can go quite smoothly. If the offer is crafted within the guidelines set out by the IRS, with intelligent, experienced negotiation, you may qualify for acceptance. Additionally, the IRS has been much more lenient in settling with taxpayers having overwhelming tax debt than in prior decades (see offer in compromise chart).
If you are contemplating starting the process, there are guidelines to be mindful of to maximize your chances of getting your offer in compromise accepted:
• Make quarterly estimated tax payments. Make timely and accurate quarterly estimated payments. Be sure to follow all requirements if you are self-employed. If you have not followed these rules, you will find the IRS rejecting your Offer in Compromise because you have not complied with the tax rules. Also, if you are a W-2 employee, be sure that your withholding is correct.
• File Taxes. File your taxes for every year. The IRS will not negotiate a deal until you have filed all of your tax returns. It is only until you are in full compliance with your tax returns that they will consider your offer in compromise.
• Be prepared: provide all requested documents. To apply for an offer in compromise, you will need to fill out financial forms 433A (individual) or 433B (business) and form 656 (offer in compromise) all included in the IRS offer in compromise application booklet. Along with these forms, below is a list of documents you will need to provide (if applicable) to prove to them that you qualify for an offer in compromise. These documents include:
- 3 months of bank statements
- most recent pay statements, such as for W-2, pension, social security
- 6 month profit and loss statements
- car statements
- mortgage statements
- rental agreements
- 401k, pension, IRA/all other investment statements
- divorce decree/legal separation agreement
- child support/alimony agreement
- utilities statements (internet, phone, gas, electric, water)
- health insurance statement
- out of pocket health expense statements/receipts
- credit card statements
- student loan statements
- life insurance statements
- judgments/court orders
- loan statements
- other state taxing authority payment agreements
- other expense statements where such expenses are necessary for the production of income. The IRS necessary expense test is defined as “expenses that are necessary to provide for a taxpayer’s (and his or her family’s) health and welfare and/or production of income.”
- documentation showing that IRS national and local expense standards (called the Collection Financial Standards) are inadequate to provide for basic living expenses.
Until they receive these documents, they will not move forward in processing your request. This can hold your offer up for some time, leading up to a rejection of your case.
• Make payments after acceptance. Send in all requested payments. After you qualify and the IRS accepts your offer, be sure to make the negotiated payment in full. Without a payment, your offer will not be processed.
• Above all else be truthful. It is important that you tell the truth about your financial situation when applying for and negotiating your offer in compromise. The IRS offer in compromise officer on your case will investigate ALL information you provide to them. If there is any indication that you are being dishonest, it is highly likely that your Offer will be rejected. Not to mention, it is a crime to lie on the IRS collection information statement when applying for an offer in compromise.
To greatly improve your chances of acceptance, it is crucial to find a tax attorney experienced in this type of complex IRS negotiation. The Tax Attorneys at Delia Law have many years of IRS experience and will aggressively represent you before the IRS. Please call for a no-cost tax attorney consultation at (619) 639-3336. We look forward to helping you.
This blog post is not intended as legal advice and should be considered general information only.