Offer in Compromise – The IRS's gift to you.
Tax debts can spiral out of control to the point where the taxpayer's ability to pay is rather limited. If the IRS tried to collect 100% of every dollar owed from every delinquent taxpayer, there would be a revolt. If there's one thing that the IRS is good at, it's controlling the masses. The Offer in Compromise Program is the IRS's opportunity to look gracious and kind by giving people a break.
It IS a real program!
Some people get confused about the validity of the offer in compromise, and it usually comes for two very good reasons:
- "The IRS is trying to be nice? To me? And I can actually negotiate with them?" You got it. Remember that the IRS is exceptional at controlling the masses. It's in their best interest to throw taxpayers a bone from time to time.
- Offer in compromise marketing tactics are aggressive. We've all seen the postcards and TV ads promising to settle your IRS debt for "Pennies on the Dollar!" Admit it, we're wary of false promises and tactics like this just make us roll our eyes. It really is possible to pay less (sometimes a LOT less) than what you owe. You just have to understand how to negotiate with the IRS.
What NOT to do
There are some instant benefits to filing an offer in compromise. The IRS can’t collect from you; they can’t levy you; and they can’t garnish your wages. This leads some people to think, "I’ll file an offer in compromise, and who cares if it's rejected? If it is, I'll just file it again and again! I'll never pay anything!"
It's really up to the discretion of the IRS if they want to accept your offer in compromise. If they see you filing offer after offer, it's going to raise red flags that you don't play fair. That guarantees you an uphill battle against the IRS, and they don't like to lose fights.
It might seem contrary, but do NOT use the IRS pre-qualifer tool on irs.gov. Or, if you decide to use it, understand that it's not accurate and may give you completely false information. There are so many things that go into getting an offer in compromise accepted. It's not just a raw numbers game, it's about telling the right story. You better believe that the IRS will take into consideration what your reasonable collection potential is.
Can the IRS even consider your offer in compromise?
There are a number of things that can stop you from being eligible for an offer in compromise; unfortunately, it's not in the best interests of the IRS to let you know this. They manage to do a fantastic job of failing to tell you this until after you've filed it and wasted your time.
If you've recently filed for bankruptcy, you won't be eligible to apply for an offer. For an offer to be eligible, it's incredibly important that you are current. Being current can be defined as follows:
- For the average taxpayer, being current means that your current tax withholdings are correct;
- If you're self-employed, it means that your estimated payments are being made quarterly; and
- If you're a business trying to settle payroll taxes, your deposits must be current for at least two quarters in a row.
When you're trying to get your life back on track, working with a team of professionals that understand the IRS is vital. Help is always available, and stress shouldn't be considered a necessary part of the process. If you don't know what to do, but you know that you're ready to get your situation resolved, don't hesitate to contact us. We're here to help.