October 10, 2016

Filing an offer in compromise is one way to settle a tax problem with the IRS. Not only will you be able to quickly resolve your debt, but you may even get a significant reduction on the debt accrued. Unfortunately, the majority of all offers submitted by taxpayers are rejected. If you are in the process of preparing an offer in compromise, here are four tips that may prove to be useful:

  1. Know if you qualify.

Not all clients with a large amount of tax debt qualify for an offer in compromise. Don’t bother submitting an offer if you have unfiled tax returns or have a history of non-compliance and not paying your taxes. You also will not qualify if you are a tax protestor, or have deliberately avoided paying taxes in the past. Like all other programs, OICs are restricted to those who have actually filed all their tax returns. You must also not be in bankruptcy.

  1. Make a serious offer.

Many taxpayers seem under the impression that the IRS will accept lowball offers without any supporting documentation to present. Don’t prepare your offer in compromise based solely on your actual expenses and hope the IRS will take your word for it. Take the time to understand IRS allowances. Be aware that your offer should be the amount of your disposable income (which is your income subtracted by allowable expenses) multiplied by 12 months. Junk offers will automatically be rejected, which means you will lose the 20% of your offer you are required to pay when filing a request. If you opt to submit a legitimate offer later on, you will need to pay another application fee and make another 20% down payment.

  1. Do not accumulate more tax debt.

Make sure you do not accumulate even more tax debt while the IRS reviews your offer in compromise. The IRS can take up to 12 months to review your application. If you are due to pay a quarterly estimated tax, for instance, don’t stall and wait for the IRS to approve or reject your offer in compromise before paying your taxes due. Adding more tax debt may ruin your chances of having your offer approved.

  1. Take advantage of the CSED

The Collection Statute Expiration Date or CSED refers to the IRS statute of limitations, which gives the agency 10 years from the date your tax debt is assessed to collect from you. The IRS is no longer legally allowed to collect from you once the ten-year period has passed. If executed properly and if your tax liability is expiring soon, then the IRS may consider granting your offer in compromise as opposed to risking not being fully paid with an installment agreement.

Of course, following these tips will not guarantee that your offer in compromise will be accepted by the IRS. To greatly increase your chances of getting your offer approved, consult with an experienced and knowledgeable tax attorney.

Categories: IRS