Filing an offer in compromise with the IRS can be a great way to resolve a past tax problem. Not only can you settle the debt quickly, but sometimes you can get a really substantial reduction on your accrued debt. Unfortunately, as is the case with everything the IRS touches, it's not all straight-shooting. The vast majority of offer in compromises submitted by taxpayers are either rejected or require the taxpayer to pay way too much money.
Luckily, that doesn't have to be the case. We are going to share four offer in compromise tips that can help you save thousands of dollars, and — just as importantly — put a long-suffering IRS tax problem to rest.
Tip 1: Actual expenses
When submitting an offer in compromise to the IRS, you'll need to fill out a 433-A detailing your expenses. Whatever you do, don't prepare your offer based only on your actual expenses (if they're in excess of the IRS standard allowances) and leave it at that. You have to know when the IRS won't allow expenses over their maximum allowance and when they will. If you are arguing actual expenses, they have to be fully documented and you must provide reasons why an expense over the standard of what the IRS thinks is 'necessary'.
The result of not understanding or researching IRS allowances can doom your offer from the start. While actual expenses often rise above the IRS standards, your research may uncover areas where using the IRS allowable expenses are more beneficial than using actual expenses.
Tip 2: Legitimately reduce equity positions
Take advantage of ways to exclude or reduce equity in assets. When evaluating what you own make sure that you don't value things higher than they should be. Claiming the additional allowable deductions on the offer for vehicles of certain age and mileage can be a great way to add some more wiggle-room to your offer. Research the limitations on withdrawing funds from your retirement account, taking loans, or converting equity in savings into an arms-length future stream of income that won't be considered a dissipated asset. If that sounds confusing to you, it's because it is. But please believe me when I say that taking the time to understand these concepts can be the difference between an accepted offer and one the IRS laughs out the door.
Tip 3: Use the Collection Statute Expiration Date (CSED) to your advantage
The IRS statute of limitations (CSED) can be used as an extremely powerful leverage even if you have the ability to pay off your debt. The CSED gives the IRS ten years to collect from you after your tax debt is first assessed. After this window has closed, they are no longer legally allowed to collect. There are some caveats, but it can be an incredible tool or bargaining chip if used correctly. If your tax liability is about to expire, the IRS may consider granting an offer in compromise instead of gambling on an installment agreement where they are not guaranteed proper payment.
Tip 4: Use your right to appeal
If your offer in compromise is rejected, obtain the income, expense, and asset tables that the Offer Examiner prepared. You can usually find something incorrect that is arguable and you can take a minute to ensure that they have the right figures. If possible, this can also give you a chance to provide any further arguments you might have. While it sounds like a long shot, this persistence can be the difference between an accepted offer or going to appeal.
if you need assistance submitting an offer in compromise, or with appeals, contact us. We can help.
