IRS Offer in Compromise
IRS Tax Attorneys Serving San Diego and the Southwest United States
The IRS provides the ability to resolve your tax debt with the U.S. Treasury for an amount that is less than the full balance due through an Offer in Compromise. What is the process involved in an Offer in Compromise? Is the IRS in the business of settling huge tax debts for pennies on the dollar? What should you know about the IRS Offer in Compromise program? If you are able to pay your tax debt to the IRS, the Offer in Compromise program should not be considered. The IRS reserves the Offer in Compromise for times when payment would create an unreasonable financial hardship for the U.S. taxpayer.
The Steps to the IRS Offer In Compromise Program
You should begin by visiting the IRS website and complete the Offer in Compromise Pre-Qualifier. This free and easy fill-in-the-blank program helps to confirm your eligibility and prepares an initial proposal to the IRS. You must tell the IRS if you intend to pay the IRS in a lump sum, or if you intend to make installments. If you intend to pay a lump sum, you must pay 20% of the amount due with the application, as well as a $186 application fee. If your offer is accepted, you will pay the remaining balance in 5 or fewer installments over a short period of time.
If you intend to make installments, you submit the initial payment with your application and continue paying monthly until you hear from the IRS.
There are additional benefits to submission of an IRS Offer in Compromise as the IRS will temporarily suspend collection efforts, and you may be able to suspend payments of existing installment programs. If your offer is rejected you have 30 days to appeal the decision using IRS Form 13711. Alternatively, the downside is that the statute of limitations is tolled relating to collections until the IRS makes a determination on the OIC. However, the tolling does not stop the continued assessment of interest and any applicable penalties.
The IRS Aggressively Pursues Collection Alternatives When Taxes Are Owed
The IRS will use every available tactic to collect the taxes you owe, including the filing of liens, the garnishment of your income and wages and levies seizing all the money in your bank accounts, investments and savings accounts. The submission of an Offer in Compromise to the IRS without careful consideration may expose more information about your assets and ability to pay than would be in your best interest.
How Does the IRS Offer In Compromise Really Work?
The IRS guidelines state that your Offer in Compromise will only be accepted if your offer is equal to or greater than the amount the IRS has established as its own “Reasonable Collection Potential (RCP)” on your balance to the IRS. The IRS perceives your RCP to be:
- Your monthly disposable income over a period of up to 5 years;
- All of your bank account balances, stocks & bonds / investments and business receivables; and
- The amount the IRS can reasonably expect to raise by selling your personal assets, real estate, car(s), etc.
This is an exceptionally high burden for U.S. taxpayers. In the vast majority of cases, the IRS will not accept an Offer in Compromise if your offer is less than what they have calculated as your Reasonable Collection Potential, or RCP. Most U.S. taxpayers are not willing to pay the amounts listed above to the IRS. In addition, there is a time limit known as a “Statute of Limitations” for the IRS to collect the amounts owed by a US taxpayer.
Allen Barron’s Approach to an Offer in Compromise
The IRS is not interested in simply allowing taxes to be easily negotiated away, and the U.S. taxpayer is not in a position to establish the factual basis necessary on their own to move the IRS to accept most offers. There are two primary reasons why the IRS will actually accept an offer that is substantially less than the amount owed by a US taxpayer:
- There is a “Doubt as to Liability,” or DATL, regarding the debt owed to the IRS, or
- There is a “Doubt as to Collectability,” or DATC, regarding the debt owed by the U.S. taxpayer
The experienced tax attorneys and accounting experts at Allen Barron review the tax returns in question. We are often able to find mistakes, deductions or credits that tax preparers, accountants or bookkeepers may have missed. With this information we are able to challenge the debts you owe through a “Doubt as to Liability,” or DATL, challenge.
If our review finds that the amounts claimed to be owed by the IRS are substantially correct, the best strategy will be to provide the agency with enough documented information to show that the there is a “Doubt as to Collectability,” or DATC, and submit an offer that restates the amount of your actual “Reasonable Collection Potential,” or RCP, and the likelihood that the IRS will be in a position to collect a substantial portion of the tax debt owed before expiration of the statute of limitations.
Why You Should Never Work Directly with the IRS
The IRS will use all information provided by you, the taxpayer, in an attempt to increase the amount of tax you owe, and to collect unpaid taxes. IRS revenue officers and agents are highly trained professionals that are experts at getting U.S. taxpayers to divulge more information than required by law, and against their own personal interest.
Many taxpayers believe that a spirit of cooperation and an exuberance to provide information will ingratiate them to the IRS representative. This is simply not the case. It is not in your interest to speak with an IRS agent.
The experienced tax attorneys at Allen Barron are able to provide the protections of the attorney-client privilege to our clients. We provide only the information that is required to meet the needs of the IRS for the matter at hand, and in Offer in Compromise cases, these negotiations can be quite complex. In order to achieve a genuine opportunity to resolve tax burdens, we must document the state of the taxpayer and provide evidence to convince the IRS to accept our offer.
If You Owe the IRS More than $10,000, Contact the Experienced Tax Attorneys at Allen Barron
There are far too many commercials which make light of the idea that U.S. taxpayers can settle their debts with the IRS for pennies on the dollar. While this is simply not the case for many, the tax attorneys at Allen Barron have the experience, credibility and expertise to document Offer in Compromise cases, and to successfully prepare and submit cases that have the greatest opportunity for acceptance.
If you owe more than $10,000 to the IRS, we invite you to contact us for a free and substantive consultation at 866-631-3470. We will work to reduce your tax burdens and resolve your back tax debt in a manner that allows you to take control of your financial life and move toward a brighter future.
Contact Us To Learn More About Allen Barron's Services
For more information about an Offer in Compromise or to discuss your tax, legal and accounting needs contact Allen Barron or call 866-631-3470 for a free and confidential initial consultation. Learn about the importance of integrated business strategy and coordination across legal, tax and accounting systems.
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