Offer in Compromise to Settle Your Tax Liabilities
What is an Offer in Compromise?
An offer in compromise is a contract between a taxpayer and the IRS to settle an outstanding tax debt for less than the full amount owed. The program provides eligible taxpayers with a “fresh start” and a path for paying off their tax debts. Submitting an application for an offer in compromise does not ensure that the IRS will accept the offer or agree to reduce your tax liabilities. The most recent statistics published by the IRS show that offers in compromise are only accepted about 24% of the time. That is why you need the experience of the competent tax attorneys of the Business Law Group to ensure your offer in compromise has the best chance of success.
When Can the IRS Settle My Taxes?
The IRS can only accept an offer in compromise if you qualify under one of the following three circumstances:
- Doubt as to Collectability: The IRS agrees that the taxpayer’s outstanding tax balance could never be paid in full from the taxpayer’s assets or financial circumstances. The taxpayer does not have valuable assets that could be seized and sold. The taxpayer does not have sufficient income to ever pay off the full tax debt over time.
- Doubt as to Liability: The IRS recognizes that the total amount of the taxes owed may be incorrect for some reason. The IRS examiner may have applied the incorrect law or denied appropriate deductions. Additional evidence may have been discovered to affect the tax liability.
- For Effective Tax Administration: This is a special category that allows the IRS to compromise a valid tax if special circumstances indicate that collection of the tax would create an economic hardship or would be unfair or inequitable. This is a very difficult burden to meet.
How to Submit an Offer in Compromise
To submit an offer in compromise, the taxpayer must complete a number of specific forms and provide detailed financial information, accompanied with supporting documentation. When the Business Law Group prepares an offer in compromise, we also perform and include appropriate legal analysis and argument, and supplemental disclosures as appropriate. In preparing the documents for an offer in compromise, it’s important to recognize that there are a number of hazards to avoid. You may be providing the IRS with all the information it needs to pursue collection activities against you, such as asset lists and values, and bank account information and amounts. That’s why it is important to have an experienced tax attorney assist in preparing your offer in compromise to ensure it has the greatest possibility of acceptance and to best minimize these risks and hazards.
The amount of your offer must equal the minimum amount the IRS believes they will be able to collect from you. The calculation generally includes 80% of the value of your assets, plus your excess monthly income as measured over a period of either 12 or 24 months, depending on the type of offer made.
If your offer in compromise is accepted, there are a number of things to keep in mind:
- You will be required to pay a deposit equal to 20% of the total offer amount when the offer is submitted, unless you qualify for low-income relief
- The IRS will keep any tax refund you would otherwise be entitled to receive during the calendar year in which the offer is accepted – which can be mitigated to some degree through effective tax planning in advance
- You will be required to timely file all necessary tax returns and remain fully compliant with your tax obligations for a minimum of five years after the offer in compromise is accepted. If you fail to remain complaint, the IRS can void your offer in compromise and resume collection activity
- All IRS collection activities will stop while the offer in compromise is being considered and during any periods the offer in compromise is in effect. However, the statute of limitations for collecting the taxes is also suspended while the offer in compromise is being considered, plus an additional year
Call the Colorado Tax Attorneys at the Business Law Group
The tax attorneys of the Business Law Group can help you prepare an appropriate Offer in Compromise, and obtain a “fresh start,” while minimizing the hazards and pitfalls inherent in providing your sensitive information to the IRS as part of the application. Call us today!