Offer in Compromise qualification – Will I Qualify for an Offer in Compromise?
If you are contemplating settling your tax debt with the IRS, it is definitely a good time to look into it. However, not everyone will qualify despite what the barrage of TV ads say from these unethical tax relief companies. They will take anyone as a client so beware and know the offer in compromise qualification the IRS uses!
Many taxpayers come to the conclusion that they will qualify based upon having nothing left over at the end of each month. But, that’s not how the IRS sees it. It really depends upon what you are spending that leaves you with no money.
IRS collection financial standards
To figure out whether you qualify for an offer in compromise (“OIC”), the IRS goes by their Collection Financial Standards to assess your financial condition. If you go over their standards for certain expenses, they will generally disallow the amount over the standard.
For example, the national food and clothing standard for a family of two is $1,202 (as of 2/11/19). They will only allow this amount, instead of the $1,500 of what you really spend. This dis-allowance unfortunately will show the IRS that you can pay them more than you actually can. This in turn raises the settlement offer of your OIC or may disqualify you altogether.
Below are IRS links to the Collection Financial Standards to assist you in whether you qualify for an offer in compromise:
- National Standards: Food, Clothing and other Items
- National Standards: Out-of-Pocket Health Care Expenses
- Local Standards: Housing and Utilities
- Local Standards: Transportation
IRS considerations of your offer in compromise qualification
The IRS will consider expenses over the allowable amount depending upon the facts and circumstances of a taxpayer’s situation. A good example is that of child care expenses. If this is the case, documentation of proof of this expense (receipts, check copies) must be provided.
It is important to understand that when doing an offer in compromise, the IRS really sticks to the standards. Unfortunately, the standards are generally not enough to live on for most families and is certainly not the real world. For example, families have kids in college, these college-aged kids are living at home, but the IRS does not see college expenses or the expense of that extra kid at home as allowable.
This seems oppressive and downright unfair to most. Basically, the IRS is looking to exclude taxpayers with excessive lifestyles when determining whether an offer in compromise should be accepted or not. The IRS offer in compromise program is a very viable option for the right taxpayer(s) and it does work. You just have to position yourself properly and know the IRS guidelines.
Lastly, be aware that all taxpayers must be in compliance and have full documentation for an offer in compromise to even be considered. Refer to this OIC article for a summary checklist.
Taxpayers needing assistance in dealing with an offer in compromise and IRS tax problems should seek the advice of a knowledgeable tax attorney. The Los Angeles Tax Attorneys at Delia Law have many years of tax resolution experience and will competently represent you before the IRS. Please call for a no-cost tax attorney consultation for tax resolution at (310) 494-0100. We look forward to helping you.
This blog post is not intended as legal advice and should be considered general information only.