Offers in compromise settle your tax debt for a significantly reduced amount. Rather than disputing the amount of taxes you owe, they focus on your inability to pay the debt (or other issues). And, while you negotiate an offer in compromise, the IRS cannot garnish your wages or seize your property. You can also request an offer in compromise from the Commonwealth of Virginia.
Do I Qualify for an Offer in Compromise?
You may qualify if you can prove that:
- The IRS will be unable to collect your tax debt,
- There is doubt as to your liability, or
- Collection is against the interest of “effective tax administration.”
Other requirements may also apply to your claim. For example, you must be up-to-date on your tax filings (or have filed an extension) and cannot have an open bankruptcy case.
Additionally, an offer in compromise may not be in your best interest if the IRS’ collection statute of limitations is approaching. Filing an offer in compromise pauses the statute of limitations, potentially giving the IRS more time to collect your tax debt. While the IRS offers an online tool to help determine your eligibility, a tax relief lawyer can better assess your claim and provide personalized advice and solutions. A lawyer can also help you understand the costs related to the settlement process.
Preparing Offers in Compromise
While the federal offer in compromise process was liberalized in 2012, it still requires a detailed and often complicated financial and legal analysis. Many offers are rejected because the IRS improperly believes you have “reasonable collection potential” or because there were errors in your offer package. It’s important to build a compelling and well-structured offer since many offers are rejected. A tax attorney with significant experience negotiating offers in compromise can help you avoid these issues.
Before you submit a proposed settlement to the IRS, you must obtain a variety of records, complete a series of forms, and perform a detailed analysis of your tax debt and financial assets. The IRS looks at your current assets and your future income potential when it assesses your reasonable collection potential. However, there are exceptions and exclusions available. A tax lawyer can help you properly calculate your collection potential and not overstate your finances.
Your lawyer will verify your tax returns and review your financial information. During this process, you should expect your lawyer to communicate with you — allowing him or her to tailor your offer in compromise to your needs. Finally, your lawyer will compile your information on an IRS Collection Information Statement (Form 433-A or 433-B).
Filing Offers in Compromise
Once your proposed settlement package is complete, your lawyer will submit it to the IRS (along with a filing fee and your initial payment). The IRS will then review your proposal, negotiate with your lawyer, and either approve or reject the offer. Unfortunately, this is a slow process. As time passes, your tax lawyer will monitor your claim and update your information as needed. (Many offers in compromise are denied because the IRS does not receive this updated information.)
While the IRS is evaluating your offer in compromise, it cannot levy (or seize) your property. However, it can still issue tax liens. If you have concerns about levies and liens, contact a tax lawyer immediately for assistance.
Approved Offers in Compromise
If your offer is approved, you will pay the settlement amount either in a lump sum or in monthly payments. (Typically, installment plans allow you to pay your offer in compromise over six to 24 months.) Once you pay your tax settlement in full, the IRS will release any tax liens issued against you.
Let the Sodowsky Law Firm Negotiate for You
Our tax relief lawyers have extensive experiencing preparing and negotiating offers in compromise. Unlike cut-rate offer mills, we give our clients personalized attention and advice. If you need assistance with your tax debt, contact the Sodowsky Law Firm.