Offer in Compromise
Offer in Compromise
Many people wonder – can I settle my tax debt with the IRS? The answer is yes but you must qualify. One resolution option is through an Offer in Compromise. Through this process, you offer the IRS a specific amount and if accepted, the IRS would wipe the remainder of the balance off your account. Sounds simple enough but as you might imagine, the IRS is not so willing to settle on tax debts. Their goal is to see the full balance paid including penalties and interest. That’s where having a Licensed Tax Professional on your side to advocate for your best interests comes in handy.
Who qualifies for an Offer in Compromise?
Unfortunately, not everyone qualifies for an offer. In order to determine if you qualify, you must first look at your current financial situation and determine what the IRS considers your “ability to pay” the tax balance by looking at the following factors:
- Equity in assets
The amount that you offer is based upon these factors and plugged into a formula the IRS provides. The primary goal is to show both your monthly disposable income and equity as close to zero as possible. The less you show in these factors means the less you have to offer the IRS. Now, you may think this is pretty black and white but unfortunately, it’s rare that the IRS sees it that way. Where you may think it’s obvious you lack the ability to pay, the IRS will try to find a way to assert you do in fact have the ability to pay the balance, perhaps not in a lump sum, but over time through an installment agreement. Remember, the IRS wants to see the full balance paid even if they don’t get it all upfront.
Does the IRS actually accept Offer in Compromises?
The great news is YES! The IRS does accept Offers. However, it can be extremely rare and difficult to achieve because of the “opponent” in the IRS Offer Specialist. This IRS Agent that will review the offer has typically been with the IRS for several years if not decades. They understand the tax code like the back of their hand and will fight tooth and nail to show that you DO have the ability to pay the full balance. Having conversations with this agent can be difficult to navigate if you don’t understand the bounds they are required to stay within. Here at Hood CPAs, our team of Licensed Tax Professionals have a great deal of knowledge and experience in navigating these conversations with the Offer Specialist to put the taxpayer in the best spot possible.
How long is this process?
This resolution option is one of the lengthiest processes with the IRS. Especially coming out of the pandemic where the IRS is backlogged in processing just about everything, we are seeing processing times of about a year or even longer for an Offer in Compromise. Even though the upfront process can be lengthy, the reward at the end if accepted can be huge!
What if my Offer in Compromise is rejected?
As we have mentioned above, the IRS is difficult when it comes to an Offer in Compromise and has potential to reject the offer that was submitted. But the process doesn’t end there. Typically, when the IRS rejects an Offer, that rejection comes with appeals rights. If appealed, a separate agent of the IRS will be assigned called an Appeals Officer. The purpose of the Appeals Officer is a mediator of sorts where the Offer Specialist has disagreed with the Taxpayer’s submission and their job is to find the facts of the case and make a final determination. They will decide whether to sustain the rejection or to accept the offer that was submitted. Our team of Tax Professionals will fight tooth and nail to ensure your side is seen and will do everything possible to get an accepted offer for you if you qualify.
Have more questions? Set up a free initial consultation by clicking HERE or give us a call at (918) 747-7000 and ask for a free tax resolution consultation to get yours scheduled today!
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IRS Tax Resolution Roadmap
Meet with us to determine if resolution is the right path and what options might be available.
File power of attorney form and determine if all required returns are on file per IRS guidelines.
Prepare forms that outline all equity in assets and monthly disposable income (MDI) for the three most recent months.
Negotiate to secure resolution-based upon financial analysis.