Suppose you have tax debt to the Internal Revenue Service, but you can’t afford to pay the full amount. Do you know you might be able to resolve your debt in a way that is legal and creates a win/win for both you and the IRS? It’s called an Offer in Compromise and could be the answer you’re looking for to resolve your tax issues once and for all. However, you must proceed with caution.
What is an Offer in Compromise?
The IRS website irs.gov explains it best.
An offer in compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can’t pay your full tax liability or if doing so creates a financial hardship. We consider your unique set of facts and circumstances:
- Ability to pay
- Income
- Expenses
- Asset equity
The website goes on to explain that most everyone’s Offer in Compromise is generally approved, so long as the amount being offered aligns with the amount the IRS can expect to collect reasonably over the allotted time period. “Explore all other payment options before you submit an offer in compromise. The Offer in Compromise Program is not for everyone. Be sure to check the qualifications of any tax professional you hire to help you file an offer,” the website explains.
Determining the offer amount can be challenging because it should be fair and reasonable. The IRS must feel that you are truly making an effort. Offering pennies on the dollar may not be sufficient, but offering something more reasonably substantial that you can afford – even if a fraction of your total IRS tax debt – may be deemed an acceptable Offer in Compromise. That’s the goal: to get you out of debt and back in good standing with the IRS.
How To Get Started With The Offer in Compromise Process
The first step is to confirm if you are eligible. You will need to prepare a preliminary proposal by using the IRS’s Offer in Compromise Pre-Qualifier Tool. According to the IRS:
You’re eligible to apply for an offer in compromise if you:
- Filed all required tax returns and made all required estimated payments.
- Aren’t in an open bankruptcy proceeding.
- Have a valid extension for a current year return (if applying for the current year).
- Are an employer and made tax deposits for the current and past 2 quarters before you apply.
So what happens if you apply and are deemed ineligible? The IRS will return your application and the application fee and the offer payment you made will be applied to your balance due.
Alternatively, if you are accepted, you will need to go through the full application process, and submit your payment option. The IRS explains:
Your initial payment varies based on your offer and the payment option you choose:
- Lump sum: Submit an initial payment of 20% of the total offer amount with your application. If we accept your offer, you’ll receive written confirmation. You must pay any remaining balance due on 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 the IRS accepts your offer, continue to pay monthly until it is paid in full.
There may be additional options if you meet the low-income certification guidelines as well.
Do You Owe Back Taxes and Need Support With An Offer In Compromise?
If you live in the Washington, DC, or Maryland area and need help getting your tax debt in order, Michael Lapidus at The Lapidus Law Firm can help. Michael, with an LL.M. in taxation from the Georgetown University Law Center has vast experience in the tax law space, and can help you resolve your debt with the IRS in a way that is reasonably affordable to you.
Call The Lapidus Law Firm today for help at (202) 785-5111. We will fight to make things right.