The IRS Offer in Compromise isn't always necessary or available. Most people with tax debt just don't make good candidates for the IRS' formal “settlement” program.
So the question for those people who do qualify for the Offer in Compromise is whether it's really necessary to try?
There are ways to keep the IRS at bay that may be less “difficult” and that will allow you to end up with the same result in the end.
Tom owed the IRS $200,000.00 plus interest and penalty that he incurred as a result of trying to keep a venue booking business afloat. Instead of paying the IRS he paid his employees and vendors.
The business went under and he filed for bankruptcy before the IRS debt met date criteria for discharge. He then floundered for a while licking his wounds and trying to get back on his feet.
He worked regular jobs but none paid well. The IRS would contact him every few years and every few years he'd supply a list of his assets, basically a car and some old furniture, his income and his budget.
The IRS would agree to a small payment plan and Tom and the IRS would go back to co-existing.
Finally Tom found a job he enjoyed and began making much better money…bought some stuff, saved some money, and he met the love of his life and wanted to get married.
The IRS spotted the change in income, not the change in the romance department… and asked for some updated income information. His small payment plan with the IRS became a bigger one. So he visited an attorney and they decided that he had two choices:
1. He qualified to file an offer in compromise and given his new income he might have been able to settle the debt for $45,000.00
2. He could stay on the payment plan negotiated with the IRS previously and end up paying $24,000.00 on the debt.
Which do you think Tom chose?
Tom really wanted to just get this tax debt mess over-with. He was afraid that his fiance wouldn't stick around if he didn't. But what she didn't understand was that Tom only had 24 months remaining on his 10 year statute for collection and the amount the IRS agreed that Tom could afford to pay each month was $1000.00. 24 x 1000 = 24000. The IRS had agreed to leave his 401k savings alone.
The alternative Offer in Compromise was the quick sale value of the money in the 401k plus the $1000.00 x 12 for the total mentioned of $45,000.00 above. The Offer in Compromise would stop the 10 year clock from running while it was being reviewed for up to one year.
Tom stayed in the payment plan.
Other reasons to rely on the Collection Expiration Statute and not an Offer in Compromise
What if you've reached a point in life where your income is fixed and relatively low. The IRS might agree to place you on Non-Collectible Status or a small payment plan and simply leave you alone while the clock runs on collection.
What if you don't care about a tax lien release? The offer would give you the release if successful…but, you may not need to get a better credit score (and liens may not affect credit scores much longer anyway) or buy property. If you don't own a lot of stuff, the lien isn't really worth much as a result anyway. What if the 10 year statute period were near and the liens would expire anyway on that date?
What if your income is steady? An IRS Payment Plan may make sense given the fact that the 10 year clock continues to run while on a payment plan. If it's not far away – this may make more sense than an offer in compromise. See Tom's example above.
The key is to compare all your options. Facts make the case. A close review of the facts surrounding your present and future situation both financially and with the IRS.. will tell you what the best route is. Sometimes it's a close call. But time…is your friend. You can always come back to the Offer in Compromise down the road if the facts change.