Evergreen Tax Law

Settle Your Taxes for Pennies on the Dollar?

 

     Yes, it’s true! But there is a catch. We have all seen the commercials and heard the advertisements. Some companies seem to guarantee that they can all but make your tax problem disappear. But it isn’t that simple (nothing ever is, right?).

 

     The IRS does offer an option that anyone can apply for, and if you fit the requirements, the result can be a significant reduction in the amount you have to pay. This is called an Offer in Compromise, and it is an agreement between you and the IRS to pay less than you actually owe.

 

 

What is an Offer In Compromise?

 

     If you owe taxes but cannot afford to pay them, the Offer in Compromise option may allow you to have your entire debt forgiven by paying only a percentage of what you actually owe.

 

     An Offer in Compromise is just that, an offer you make to the IRS to settle these tax debts once and for all. However, the IRS will only accept an Offer in Compromise that is based on one of the following:

 

• Doubt as to Liability – When there is a genuine dispute as to the existence or amount of the correct tax debt under the law.

 

• Doubt as to Collectability – When an analysis of your income and assets shows that it is unlikely that you could fully pay the amount you owe.

 

• Effective Tax Administration – When the IRS is correct about the amount you owe, AND your assets and income are sufficient to pay that amount, BUT doing so would create an Economic Hardship for you, or would be otherwise unfair due to Exceptional Circumstances.

 

 

Requirements for an Offer In Compromise

 

     Not Eligible for an Installment Agreement. In order to qualify for an Offer in Compromise you must NOT be able to pay your debt by way of an Installment Agreement or other means (with some exceptions).

 

     Be Current On All Tax Returns. You also must have filed ALL tax returns (or at least the IRS must have filed a Substitute Return for any missing years).

 

     Be Current On Payments and/or Deposits. You must have made all required Estimated Tax Payments for the current year. If you are a business owner with employees, then you also must have made all required federal tax deposits for the current quarter.

 

     Complete a Financial Statement. You will also need to submit a financial statement of your income, expenses and assets using Form 433-A(OIC) (and/or Form 433-B(OIC) if you are a business). Please note that these financial statements can be more complicated than they seem, and any intentional misrepresentation of your income or expenses could be considered a crime.

 

     The IRS will review your financial statement to determine your “Allowable Expenses.” The IRS does NOT consider all expenses to be equal. “Allowable Expenses” are generally those that the IRS believes are necessary, such as to provide for you and your family’s health and welfare and/or production of income. Other expenses may not be factored in to the IRS’s determination.

 

     Be Aware of the IRS National and Regional Standards. For individuals, the IRS also uses a list of national and local standards to determine the maximum allowances for a family of your size in your region of the country. These standards set the limits for many common household expenses, such as: food, clothing, rent, utilities and transportation costs.

 

     Regardless of the actual amount you spend on these expenses, if that number is higher than the number in the IRS national and local standards list, the actual amount you spend on many expenses may NOT be considered “necessary” by the IRS.

 

     This is important because the IRS will subtract these (and only these) “Allowable Expenses” from your income, and the number that is leftover will be used to establish how much available income you have leftover to pay your tax debt.

 

• For example, if your income is $4,000 a month, and you have allowable expenses of $3,300 each month, the IRS will assume that you have $700 leftover each month with which to pay the IRS.

 

     

Choose a Method of Payment

 

     Your settlement offer to the IRS can be in the form of either a “Lump Sum Cash Offer” or a “Periodic Payment Offer.”

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• Lump Sum Cash Offer: An offer payable in 5 or fewer payments within 5 or fewer months after the offer is accepted.

 

• Periodic Payment Offer: An offer payable in 6 or more monthly payments and within 24 months from acceptance of the offer.

 

     

     Consider hiring a Tax Professional. Hiring a tax law professional to negotiate your Offer In Compromise is highly advised. A tax law professional can provide essential guidance in how to present your Offer, choose which grounds your Offer rests upon, complete the all-important financial statements, handle any missing tax return or Substitute Return issues, and navigate any other issues that may arise.