IRS Offer in Compromise
If you have a tax liability with the IRS, an offer in compromise allows you to settle your tax debt for less than the full amount you owe. An offer in compromise may be a legitimate option if you can’t pay your full tax liability, or doing so creates a financial hardship. The IRS will consider your unique set of facts and circumstances to determine whether you are eligible for an offer in compromise, including your:
- Ability to pay;
- Expenses; and
- Asset equity.
The IRS generally approves an offer in compromise when the amount offered represents the most that the IRS can expect to collect within a reasonable period of time. The Offer in Compromise program is not for everyone. If you hire a tax professional to help you submit an offer in compromise, be sure to check his or her qualifications. If you are considering an offer in compromise, contact a Los Angeles tax attorney to find out if you qualify.
Make sure you are eligible
Before the IRS can consider your offer, you must be current with all filing and payment requirements. This means that you must file all missing returns and be current on all estimated tax payments for the current year. You can submit an offer in compromise for trust fund penalties, income tax and most other taxes that you owe. However, if you have been subject to the fraud penalty, the IRS has a policy of not accepting offers that include tax liabilities that have been subject to the fraud penalty. You generally are not eligible if you are in an open bankruptcy proceeding.
Select a payment option
Your initial payment will vary based on your offer amount and the payment option you choose:
- Lump Sum Cash: Submit an initial payment of 20 percent of the total offer amount with your application. Wait for written acceptance, then pay the remaining balance of the offer in five or fewer payments.
- Periodic Payment: Submit your initial payment with your application. Continue to pay the remaining balance in monthly installments while the IRS considers your offer. If accepted, continue to pay monthly until it is paid in full.
If you meet the Low Income Certification guidelines, you do not have to send the application fee or the initial payment and you will not need to make monthly installments during the evaluation of your offer.
Understanding the process
While your offer is being evaluated:
- Your non-refundable payments and fees will be applied to the tax liability (you may designate payments to a specific tax year and tax debt);
- A Notice of Federal Tax Lien may be filed;
- Other collection activities are suspended;
- The legal assessment and collection period is extended;
- Make all required payments associated with your offer;
- You are not required to make payments on an existing installment agreement; and
- Your offer is automatically accepted if the IRS does not make a determination within two years of the IRS receipt date.
The IRS is generally taking about 18-24 months to review offers in compromise. They will ensure that you are compliant with all filing and payment obligations. In addition, the IRS will check that your reported ability to pay has not increased during the time that the IRS is considering your offer. In addition, your offer will be assigned to an offer specialist who will review and examine your submitted offer, including your financial statements.
IRS OIC dissipated asset rule
Before filing an OIC, you must consider any potential dissipated assets. While the IRS is reviewing your offer in compromise, the offer specialist will search to determine if you have any dissipated assets that you have not reported on your offer in compromise. Inclusion of dissipated assets in the calculation of the reasonable collection potential (RCP) is applicable in situations where it can be shown the taxpayer has sold, transferred, encumbered or otherwise disposed of assets in an attempt to avoid the payment of the tax liability or used the assets or proceeds (other than wages, salary, or other income) for other than the payment of items necessary for the production of income or the health and welfare of the taxpayer or their family, after the tax has been assessed. Generally, a two to three year time frame prior to the date the offer was submitted will be used to determine if it is appropriate to include a dissipated asset in RCP.
Contact a Los Angeles Tax Attorney for More Information
If you might be a candidate for an offer in compromise, please contact a Los Angeles tax attorney today to determine if an offer in compromise is a good option for you.