Your Tax Settlement Guide: IRS Offers In Compromise
Having a tax debt is a huge problem for both American citizens and the U.S. government. Roughly 5 percent of Americans do not pay their taxes or have tax debt. This equates to about $28 billion per year in lost proceeds for the U.S. government. Is it any wonder that the IRS will become very aggressive with their enforcement tactics. While the IRS has ramped up financial and criminal penalties for those who do not pay their taxes, the agency has also offered various programs to help Americans pay off their debt.
The good news for taxpayers who have a lot of tax debt and are struggling financially is that it’s possible to become tax-debt free without going broke. The key is an Offer In Compromise (OIC) settlement with the IRS.
Getting a tax settlement approved by the IRS is difficult. In 2016, out of approx. 80,000 tax settlement that was submitted, the IRS only approved approx. 33,000. That’s an approval rate of about 42 percent.
FLAT FEE TAX SERVICE HAS A 90% IRS SETTLEMENT APPROVAL RATE.
What is an Offer in Compromise?
The IRS defines an OIC as “a tax settlement between a taxpayer and the Internal Revenue Service that settles a taxpayer’s tax liabilities for less than the full amount owed.” Meaning you pay less than the total debt you owe. Our tax professionals know this is a great tax relief option. What about you?
Who is an Offer in Compromise for? An OIC is generally intended for people who are financially unable to pay their entire tax debt amount. This type of OIC is known as Doubt as to Collectibility.
Insider legal tips:
- An Offer in Compromise is not available to those in the middle of bankruptcy proceedings.
- Payroll tax cannot be forgiven in an OIC unless you close out your E.I.N. You must shut your business down. If you do that, your payroll taxes will convert to income tax and then they can be settled.
Why will the IRS settle tax debt?
- Protect individuals for financial hardship. It is in the interest of the IRS to give a taxpayer a Fresh Start so that they no longer have to expend collection resources on a tax debt that will never be paid.
- The IRS will consent to an Offer in Compromise if the agency believes the tax settlement is the greatest amount it can collect before the 10-year statute of limitations runs out, which effectively stops the IRS’ ability to collect money from a taxpayer.
Interesting fact: The average Tax Settlement that the IRS accepted in 2015 was approx. $7,500.
MANY OF FLAT FEE TAX SERVICE CLIENTS PAID ONLY $500 IN TOTAL
Be warned: using the IRS financial formula doesn’t guarantee that the IRS will accept your OIC. There are many factors that can influence your OIC calculation that this formula cannot take into account, such as how close you are to the statute of limitations, i.e., how much longer the IRS can try to collect on your debt.
Important: The IRS is limited by the statute of limitations (also referred to as CSEDs), which says that the IRS only has 10 years (from date of assessment) to collect to your tax debt. If the 10 years are up, then the IRS cannot legally collect money from you. Read more about why calculating your CSED is extremely important to resolving your tax debt here.
What this means is that older tax debt will have greater bargaining power with the IRS, as they see your OIC as the last chance to collect some money from you before the statute of limitations runs out.
REMEMBER THIS: THE IRS WANTS TO DO 2 THINGS. ONE IS COLLECTING MONEY. THE 2ND IS TO CLOSE A CASE. AN OFFER IN COMPROMISE ACCOMPLISHES BOTH.
IF YOU DO NOT SETTLE WITH THE IRS, AND A TAX DEBT REMAINS IN PLAY, YOU WILL BE LEVIED. THAT’S A FACT.
Taxpayer troubles with getting OIC’s approved
There is a myriad of reasons why a person’s Offer in Compromise gets denied by the IRS. Here are some of the most common reasons:
- The tax settlement application will be returned without consideration if taxpayers haven’t filed all required tax returns.
- A taxpayer who can fully pay the liabilities through an installment agreement or other means won’t qualify for an OIC in most cases.
- A person’s RCP is too high, i.e. he/she makes too much money or has too many assets.
- Someone in the middle of bankruptcy proceedings.
- Someone has a “good chunk of money” in their 401K.
- The IRS will reject your settlement offer if the “I’s” and “T’s” weren’t all crossed on your paperwork.
If the IRS rejects an OIC, the taxpayer will be notified by mail. The letter may or may not explain the reason why the IRS rejected the settlement offer. The agency will provide detailed instructions on how the taxpayer may appeal the decision to the IRS Office of Appeals. The appeal must be made within 30 days from the date of the letter.
How Long Does An Offer in Compromise Take?
The entire Offer in Compromise process, from filing the application to an IRS decision will take approx. 10 to 12 months. The IRS will stop all enforcement action during this period of time. It’s important to also note that penalties and interest will continue to accumulate daily while OIC is being contemplated. So it’s important to get it right the first time, otherwise, you can end up with more debt than when you started. Additionally, submitting an OIC will suspend your debt’s CSED (the timeframe of collectability).
Hiring Our San Diego Tax Attorneys
As you have learned here, getting an OIC approved can be difficult, even for a tax professional, as it all depends on a given individual’s financial situation. However, an experienced tax attorney can think of things that may tip the scales in your favor, such as your case’s statute of limitations (which the IRS is notoriously bad at calculating, and other financial factors.
DON’T OVERPAY FOR YOUR OFFER IN COMPROMISE!
FLAT FEE TAX SERVICE POST FEES ON OUR WEBSITE.
The time involved in all Offers in Compromise is approx. the same. Some people take a few more labor hours than others. Don’t overpay to settle your tax debt. It doesn’t matter how much we save you. How much you owe is IRRELEVANT! It’s all about labor hours it takes to do the job.
When possible, our tax attorneys have helped many clients get favorable OICs approved. Below is a graph some of those cases:
Someone who is contemplating an OIC should seriously consider retaining the help of a tax attorney. Unlike CPAs and enrolled agents from debt resolution firms, a tax attorney isn’t just trained in compliance. In addition to knowing the rules, a tax attorney is trained in the art of negotiation and persuasive tactics, which is exactly what an Offer in Compromise is – a negotiated settlement.
The IRS Tax Attorneys at Flat Fee Tax Service has calculated hundreds of RCPs and CSEDs for clients. They also are experienced to look at an individual’s whole financial situation, using every legal tool to get their clients the best tax settlement possible. Call our tax professionals for your free consultation.
FLAT FEE TAX SERVICE, INC. – 1-866-747-7435