When tax debt is more than you are able to pay, the Internal Revenue Service (IRS) may consider an offer in compromise.
An offer in compromise is what it sounds like. After assessing your financial condition and understanding the process, you may make an offer to the IRS of an amount you can pay to satisfy your tax obligation. Beyond a payment plan, the offer may be a compromise deal whereby you pay less than you owe.
Sounds like a sweetheart deal, right? If that sounds like a great option for passing off a tax liability you don’t want to pay, it is important to consider why the IRS would agree to the transaction. A couple of reasons include:
- There is genuine question about the amount of tax that you owe.
- The cost of pursuing the tax debt by the IRS may be greater than its ability to collect the debt from you. If you are considering or in bankruptcy, or weathering financial hardship, the IRS may take an offer in compromise as a settlement against an amount it may not be able to collect over time.
- If you are suffering financial hardship, the IRS may take that into account in accepting an offer on your tax liability.
If you think you might be interested in the program, consider using the IRS Pre-Qualifier tool to walk through the requirements for eligibility. It is important to understand you will not be able to choose a comfortable sum of money to pay the IRS and have your debt excused. Here are some granular points to understand about the process:
- If you can afford to pay your tax liability on an installment basis, your offer in compromise could be rejected.
- When applying for an offer in compromise, be prepared to turn over all financial, asset, investment, retirement, and other information for review to the IRS.
- If considering an offer in compromise, you must be current on filing of your annual and any quarterly federal tax deposits.
- The IRS takes into account your reasonable collection potential (RCP). The RCP is considered “the value that can be realized from the taxpayer's assets, such as real property, automobiles, bank accounts, and other property. In addition to property, the RCP also includes anticipated future income less certain amounts allowed for basic living expenses.”
An offer in compromise must be crafted with care and concern for your financial future. Speak with an experienced tax attorney if you are considering an offer in compromise. Be wary of fraudsters who advertise tax or debt relief plans that guarantee the IRS will forgive your tax burden. In fact, the IRS rejects about two-thirds of offers in compromise, so the odds are not great at the outset. Despite that, if your application is compelling, the IRS may accept your offer.
Keep in mind during the COVID-19 crises, the IRS is not accepting new offers due to budget constraints and office closures.
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If you have an offshore tax question, a corporate payroll tax issue, or are challenged by an overwhelming tax debt, our tax lawyers can help. At Robert J. Fedor, Esq., LLC we provide tailored options to tax problems involving private wealth or corporate assets. Contact us or call 800-579-0997 today.