Considering an IRS Offer in Compromise? 12 Things You Need to Know
1. Tax Returns must be filed All required tax returns must be filed. If a return is missing the IRS won't discuss settlement.
2. The amount of the settlement isn't only about the amount of the debt
The IRS looks at income, budget, and assets to determine the amount that it will accept in exchange for forgiving the rest, not the amount of the Debt. The debt is only relevant in determining whether you can pay it in full over the time period remaining on the 10 year statute for collection. (CSED) If the IRS thinks you can afford to pay in full within the time remaining, it won't calculate an offer amount.
3. The IRS can use a budget that isn't your actual budget in determining settlement amount
In determining the amount of the Offer, the IRS gets to use a budget that it thinks you should be living on even if that is lower than what you actually spend.
4. The IRS will reduce value of property
In calculating the Offer in Compromise amount that it will accept, the IRS will reduce the value of your assets to quick sale value. This typically means a reduction in value by 20%.
5. You can appeal
If the Offer in Compromise is rejected, the decision can be appealed.
6. Collection Due Process Appeal stops collection activity and allows for Tax Court Involvement
A Collection Due Process Appeal can be filed after the IRS sends you a “Final Notice of Intent to Levy”. Filing the appeal provides you more than just additional time to figure out how to deal with the debt, it also provides you a “golden” Ticket to Tax Court. If you file the Offer in Compromise as a part of the appeal process and it is rejected, you can file a Tax Court Petition to appeal the decision. This is often a better option than an internal IRS appeal.
7. All Types of Tax Debt can be compromised
All Federal Tax Debt can be compromised. This includes debt based on Substitute Tax Returns prepared by the IRS. Not all tax debt is dischargeable in Bankruptcy.
8. Effective Tax Administration – Sometimes the IRS settles a debt because it is “fair”.
The IRS doesn't always have to compromise a tax debt just based on assets, income and budget. It can also compromise the debt if taxpayer has special circumstances . These may be possible even if the taxpayer can afford to pay the entire debt.
9. Bankruptcy may play a role
If you have tax debt that could legally be wiped away in a bankruptcy and you are otherwise a candidate for bankruptcy, this may be important in convincing the IRS to settle the tax debt. It's important to know your how bankruptcy may affect your debt and whether you may be a candidate for bankruptcy.
10.The Offer can be submitted anytime
The offer can be submitted anytime after the tax is assessed unlike in bankruptcy, which requires a waiting period for discharge.
11. Debt can be compromised before assessment
The tax debt can be compromised even before the assessment in an audit situation. Before agreeing to an amount with the IRS auditor, the IRS Offer In Compromise might be used to determine the amount of the accepted offer and then it can be compared to the costs of tax court litigation for the IRS and the taxpayer. This may result in a more positive audit result.
12. An Offer can be filed more than once
An offer in compromise can be filed more than once. Each filing probably makes success more difficult, but a poorly done and rejected Offer can be reworked and resubmitted.