We’re all responsible for paying our fair share of taxes each year. But what happens when the amount that you owe is simply out of reach? What happens if you failed to make payments in a timely manner and your financial circumstances have shifted to the point where your cumulative debt is beyond your ability to pay? In the face of this untenable position, your best option for paying the IRS may be what is known as an Offer in Compromise.
The Goal of the Offer in Compromise
The Offer in Compromise, or OIC, was created to accomplish two goals:
Taxpayers interested in pursuing an Offer in Compromise generally have three different options available to them under federal law.
The OIC process is both time-consuming and complicated. Applications require specific forms as well as extensive documentation, and all must be accurately prepared in keeping with IRS regulations. When mistakes are made or forms are incomplete the applications are quickly returned without the benefit of a review. To minimize both delay and frustration, it is strongly suggested that taxpayers looking to avail themselves of an OIC employ tax professionals for both the preparation of their paperwork and the negotiation of its terms.
It is also important to remember that an application for an OIC by no means guarantees the desired outcome.
Submitting the specifics of your situation to a qualified tax professional will provide you with the ability to have your case reviewed by an expert who understands the process and the IRS criteria for approval, and who will be able to give you a reasoned perspective on the viability of your request.
Working with a professional will also provide you with reasonable expectations regarding the amount of time that the process will take and what your chances are of having your initial offer accepted. The program generally takes about two years from start to finish, and it is common for the IRS to make a counteroffer when the agency believes it will be able to collect more than the amount proffered by the applicant.
In evaluating your case, the Internal Revenue Service will likely pay less attention to the actual amount that is owed than the amount that the taxpayer is able to pay. This determination will be made on the basis of numerous factors, including income, assets, previous earnings capacity, and anticipation of your earnings capacity in the future. Living expenses will also be taken into consideration.
The good news is that from the time that an application is sent in and while an IRS evaluation is taking place, most collection efforts are frozen. This generally provides tremendous relief from stress for taxpayers who have fallen behind in their payments and who feel unable to submit the amount that they owe.
If you have found yourself in this situation, contact us today to discuss your options. An experienced and knowledgeable tax expert will help you to understand, anticipate, and prepare for all aspects of the Offer in the Compromise process, and will act as your advocate during sensitive negotiations.