An offer in compromise can put IRS troubles behind you and bring a fresh start on your taxes.
But the road to a fresh start with the IRS is not necessarily as simple as it may sound.
The IRS has very strict criteria that they use to determine if a tax debt should be compromised.
Before jumping in with a compromise, there is much you need to know about the IRS settlement process, including:
– Whether you should even file an offer in compromise. For example, if the IRS has a limited time left to collect your debt (out of the 10 year period they are given by law), should you jump in or remain on the sidelines? Sometimes, it is better to hold ’em, but you need to know when.
– What are your chances of success. The IRS rejects more comprises than it accepts, due in part to its rigorous financial guidelines that are used to determine if they should settle or if they believe they can get paid in full. Know if your your situation merits the time invested to settle ahead of time.
– How to use the internal IRS criteria to negotiate the best settlement. It is important to know the IRS offer in compromise valuation formula before jumping in. Do you make too much to settle? What if you spend too much and the IRS wants you to cut your budget so you can pay them more? The IRS has specific formulas that are used in valuing a compromise that should be reviewed and applied to your situation before jumping in.
– The best ways to handle the full financial disclosure that the IRS requires. The IRS wants to know where you work, bank, the amount in your retirement accounts, what cars you drive, what your house is worth, what you make, and what you spend. What if your income varies year to year, and right now it is at a high? What income do you pick (hint: the IRS permits income-averaging over several years to even out the highs and he lows)?
– How to complete the IRS financial statements and compromise forms. For example, the IRS guidelines permit you to reduce the value of your cars and house by 20% on the financial statements, effectively lowering the value of your compromise by 20%. Proper completion of the forms can result in significant savings in settlement.
– Your rights to dispute an IRS rejection of an offer in compromise. Maybe they think your home is worth more than it is. Or aren’t allowing you necessary living expenses. Or think you earn more than you do or will in the fixture. Either way, any IRS compromise decision is subject to an independent review by the IRS Office of Appeals. Many offers that are initially turned down are ultimately accepted by appeals.
Success with an offer in compromise is based on knowing the IRS’s settlement guidelines, understanding how to apply those rules to your situation, and responding if the IRS does not properly follow and implement them.
In that regard, on Wednesday, January 28, 2015, I will be giving a live webinar with myLawCLE.com on how to negotiate an offer in compromise settlement with the IRS. If you are unable to attend the webinar, feel free to email me at [email protected] and we can set a time to review helping you get a fresh start with the IRS. And if an offer in compromise is not your best option, we can determine if you qualify for other alternatives, including how much longer the IRS has to collect, bankruptcy, currently uncollectible, or a monthly payment agreement with th IRS.