Offer in compromise: Avoiding an unseen IRS settlement cost
In today’s difficult economic times, every dollar counts. An offer in compromise may help, but for many there is a hidden cost – lost tax refunds.
Tax refunds increase the amount you pay to the IRS in an offer in compromise.
Here’s why: The terms of an offer in compromise requires the IRS to keep your tax refund for the year in which the offer is accepted. This means if your offer is accepted in 2010, the IRS will keep your refund from your 2010 tax return.
It may get worse. The IRS will also keep your refund in any year in which the offer is under investigation. So if you submit your offer in late 2008 but it is accepted in early 2010, you will lose the refunds on your 2008, 2009 and 2010 tax returns.
The solution is simple: Always check how much your tax withholdings are before submitting an offer in compromise. If a refund is on the horizon, request that your employer reduce the IRS withholdings so no refund is available. The cash will be in your pocket, not the governments.
Your tax refunds can easily double the amount the IRS accepts in an IRS offer in compromise. Planning ahead of time will ensure that the amount you pay is equal to the amount the IRS accepts.
