Nobody can escape taxes, but what if you are broke and can’t pay the whole amount? To deal with such situations, the IRS provides the option of requesting an Offer in Compromise (OIC) that allows taxpayers to dissolve their tax liability for an amount lower than the actual amount owed to the IRS. To request an OIC, applicants need to fill out either Form 433-A (for individuals), 433-B (for businesses), or Form 656(s) (for corporations, LLCs, and partnerships). However, there are certain things you need to know when filing an IRS Offers in Compromise, which we will present in this blog post.
Note Down the Filing Date
It is important to remember the date when you file the application for IRS Offer in Compromise. That is because the IRS is under obligation to get back to you within 2 years with an outcome on your OIC application, either rejecting, returning, or withdrawing it; otherwise, it is considered accepted. Make sure you note down the date, as the procedure can be lengthy.
Check Your Eligibility
Before you go ahead and apply for an OIC, it is essential to check the eligibility criteria. The most crucial condition for qualification for the IRS Offer in Compromise is that the IRS expects every taxpayer to regularly file their tax return. It is essential for taxpayers to file their taxes on time for the next 5 years to be eligible to apply for an OIC. If taxpayers fail to do so, the IRS has the authority to revoke the OIC and reinstate the tax debt. It is, therefore, essential to file your tax returns regularly.
Taxpayers with too much equity, open bankruptcy, or other disposable assets may not be eligible to apply for an OIC. Consult an IRS tax attorney in Fort Worth who can help you determine your eligibility for an OIC.
Have a Just Cause
The most important aspect of an IRS Offers in Compromise application is the reason that prevented you from paying the tax debt in full. It is essential to be honest in your application and give a just cause. In addition, you are also required to provide adequate proof to support your claim. A few good reasons wherein your OIC may be accepted include substance abuse issues, disability, and serious health issues.
Don’t Hide Assets
The Form 443-A, which is filled out by the applicant, should include all the details regarding the taxpayer’s sources of income, total income, and all the assets owned. When processing an OIC application, the IRS assesses the net worth of all the holdings of the applicant. So, make sure that the information you provide is true and complete. If the IRS finds some discrepancy in the information provided, not only is the application rejected, but a perjury case may also be registered against the applicant.
Choose a Payment Option
There are two options to choose from, and your initial payment will vary based on the payment option you choose:
- Lump Sum Cash: Under this arrangement, you will have to pay 20 percent of the total offer amount with your application, and if the offer gets accepted, then you need to pay the remaining balance in five or fewer monthly payments.
- Periodic Payment: Under this arrangement, you will have to choose your monthly installment, keeping in mind your finances. The monthly installment you choose excludes expenses for your basic needs, such as food and house rent. Calculate the amount after considering all your necessary expenses.
Don’t Pledge More Than You Can Afford
You are the best judge of your financial situation. Whichever option you choose, either lump-sum cash or periodic payment, make sure you do not pledge more than you can afford. You have to pay a lump sum to the IRS within 5 months of the date the IRS approves it, so find an amount you can afford and don’t pledge for more than you can afford. Remember, the lump sum you pay to the IRS is non-refundable in case your application gets denied, or you fall behind in your payments. In the case of periodic payments, find an amount you can easily pay, excluding all your necessary expenses, as your monthly installment.
The acceptance rate of IRS Offer in Compromise is fairly slim, at around 36% as per various estimates. According to IRS’s data, ‘In FY 2023, taxpayers proposed 30,163 offers in compromise… the IRS accepted 12,711 offers, amounting to $214.5 million, during the year.’
You can’t expect the IRS to accept your application if you fill any unreasonably low amount. Even if you are filling in a low number, be sure to include supporting documents. Applicants should also be careful about their spending, as the IRS revises the bank statements, and if they’re convinced that applicants can repay the debt, the OIC application gets rejected.
Don’t Wait For Clearance
In some cases, the IRS may take 6 months to a year to process the OIC application. Many applicants tend to put everything on hold until the application gets processed, which is always a mistake. If you need to pay a quarterly tax installment, do it without a second thought; not paying any tax amount until the application is processed is known as “pyramiding”, which results in tax bill inflation.
Defaulting on your payments may result in high penalties, or, in some cases, the IRS may choose to revoke the offers in a compromise deal. Keep a reminder on your phone and never miss a payment.
Seek Professional Help
Although you can use the DIY route to apply for an IRS Offers in Compromise, it is advisable to seek professional help and let an IRS tax expert take control. The IRS has a team of examiners who know what’s best for the tax body’s interests and make sure you pay the tax debt, even if it calls for selling your property or other assets. It is, therefore, important to hire an IRS tax professional with proven expertise in the IRS tax law and provisions. IRS tax lawyers can not only help you with some great IRS Offer in Compromise tips but will also guide you throughout the process, saving you from various hassles and confusions.
Need Professional Help for IRS Tax Problems? Consult a Tax Attorney in Fort Worth
Whether filing for an Offer in Compromise or appealing a rejected offer, it is advisable to seek the help of an IRS tax attorney who can guide you in the right direction. At the Law Offices of Nick Nemeth, we have a team of experienced IRS tax lawyers who practice exclusively in dealing with all sorts of IRS tax-related problems and provisions, including IRS Offers in Compromise. For a confidential, no-obligation consultation, call (817) 623-5399 or fill out our contact form, and we will get back to you shortly.
