Settle Your Taxes with an Offer In Compromise
What is an Offer In Compromise?
An offer in compromise allows you to settle your tax debt for less than the full amount you owe. The offer in compromise is an agreement between a taxpayer and the Internal Revenue Service(IRS).
How does an Offer In Compromise work?
One of the most important things with an offer in compromise is making sure the paperwork is filled out correctly. This will also determine what you can afford to pay and the amount you can settle with the IRS.
First, is the form 433A. This is the Collection Information Statement. One this form you will enter all of your income and expense information. You want to be specific. You also want to
find the IRS nation standards and use those. The national standards are what they feel you can live on. At the end of the 433A there is a place to figure the amount you can settle for.
When the IRS came out with the "Fresh Start Program" they
changed formula they use to settle the debt. The biggest change is
part of the formula would take your disposable income and multiply it by 72 and you have part of the settlement amount. This changed from 72 to multiplying the number by 12. So what this did is made it possible for more taxpayers able to utilizes the offer in compromise. Let me give you an example:
Before if you had $500 disposable income the IRS would have wanted a minimum of 500X72= $36,000.
With the New Fresh Start Program it would come to 500X12=$6,000.
So now you can see it makes it much nicer.
The second form that needs to be filled out is the form 656. This is the Offer in Compromise
form. This form will list the years that you are wanting to include in the settlement. There is also a section that ask for a brief explanation of why the taxpayer has come to the point of owing the tax debt. This also has a spot to put the way that the taxpayer will
come up with the money to pay the debt off once the settlement is excepted.
It is important to make sure everything is done correct and filled out correct. A lot of times if it is not the IRS will deny the offer in compromise and will not explain why.
Once these are filled out then it is time to send them to the IRS with the substantiation necessary for the offer. On the 433A there is a list the IRS needs. This would include three months of bank statements, pay stubs, bills and any other thing that may justify certain expenses.
Now once everything is together you mail it in with the offer in compromise and the fee for filing($186) plus 20% of the offer amount.
This waiting period can take a while. Right now we are seeing around four to six months for it to take the IRS to assign it to someone. It will be assigned to an Offer in Compromise specialist. Then the negotiations begin. The IRS may ask for more information to substantiate information related to the offer in compromise. The IRS may ask for more up to date information. More the likely the offer in compromise specialist will ask about why the taxpayer is in this situation.
The IRS will then either except, counter or deny the offer. If they accept then you will have a 90 day period to pay the offer. You will receive an acceptance letter from the IRS. If they counter you can accept or appeal the counter if you think it is wrong. If they deny it you can also appeal.
A Couple Helpful Tips for an Offer in Compromise
It is always helpful to get an Enrolled Agent or a Tax Attorney to help in the process. The fees can be costly. If you have the right representative to handle your tax debt in the end it can save you a lot of money. If you do get a Tax Attorney agree to a flat payment for them to do it and make the fee include appeals. A lot of Tax Attorneys will want to charge hourly and charge extra for appeals.