Find out why, when it comes to tax debt, professional representation matters.
If you have tax debt, you’re not alone. Many Americans find themselves owing more to the Internal Revenue Service (IRS) than they can afford to pay. Whether you have income tax debt or payroll taxes due, the IRS will, in some cases, settle for less than the total amount owing through an Offer in Compromise.
It’s easy to fall into a cycle of debt, especially when recurring late fees and other penalties can leave you racking up tax debt faster than you can pay it off. Thankfully, an Offer in Compromise can work as a negotiation tool for taxpayers.
“So,” you say. “I owe tax debt. The IRS is sending me threatening warnings. How do I get an Offer in Compromise?”
Preparing and successfully negotiating an Offer in Compromise is a complex, document-heavy process that can take 3 to 12 months to complete. While it may be tempting to apply on your own, the process is not simple. You stand a far better chance of success with the right team of tax experts on your side.
To help you better understand the process, here are a few facts about Offer in Compromise:
A Contract Between You and the IRS
At its most basic, an Offer in Compromise is a settlement between you and the IRS. They know you can’t afford to pay all your tax debt, but they want you to pay as much as you can. You are willing to pay something, but you can’t afford to pay the entire bill. In the end, a settlement serves both parties.
An Offer in Compromise ends with a specific plan for you to pay back a reduced amount of money over time. In exchange for a reduced amount owing, you promise to make either a lump sum over several months or to make monthly payments over 24 months.
In addition, you promise to file and pay your taxes on time for the next five years. This contract between you and the IRS is an important document. It releases you from the worry of account and property seizures but also commits you to pay off the reduced fee owing.
In most cases, an Offer in Compromise is considered a win for the taxpayer. Depending on the skill of the tax firm that prepares your application, you may receive a better deal than others can accomplish.
Must be Eligible
Although an Offer in Compromise sounds appealing to many taxpayers who owe significant tax debt, not everyone is eligible to apply. You do not qualify if you:
- Are behind on filing your tax returns and cannot get caught up.
- Are in an open bankruptcy proceeding.
- Have court-ordered tax debt.
- Are not staying current with quarterly estimates or payroll tax deposits.
In addition, there is a financial commitment required, as part of an application. The filing fee is $205. This fee is non-refundable but may be waived if you meet low-income guidelines. If you are making a cash offer, the IRS will also require a 20 percent down payment. If the financial component is a barrier, you may not be able to apply for an Offer in Compromise.
There are several components to the Offer in Compromise. As mentioned, you’ll need the $205 application fee (or proof of waiver) and payment towards your proposed new balance due.
Form 433-L is the official IRS document required for an Offer in Compromise application. In broad terms, it requires the following information:
Section One – This requires your personal information, including name, date of birth, address, Social Security Number (SSN), etc.
Section Two – Here, you will be asked for details regarding your employment. Be prepared for questions regarding your current job if you are working. Be prepared to answer questions about your employer’s address and business size, your wage, and the number of hours you work, etc.
Section Three – Here, you will be asked to list your cash and liquid assets. Essentially, anything you own that could easily be used as cash. You will need to have bank statements, investment statements, and other financial documents ready. Be sure to disclose everything, and honestly, as the IRS will run their own searches and you want to be fully transparent.
Section Four – If you are self-employed, you will use this section to disclose your financial information.
It helps to have supporting documents handy, as you fill out the 433-L Form. Your Offer in Compromise application will go much smoother if you are prepared with these details. If you believe the tax debt the IRS has claimed is not yours or doesn’t exist, you will need to use a different form: Form 656-L.
Remember, incomplete applications will be rejected. If the IRS sends your Offer in Compromise application back to you, you can re-apply once issues are corrected.
IRS Negotiations a Must
Once you’ve completed your application for an Offer in Compromise, the IRS will use your financial information to calculate your “reasonable collection potential”— the amount it believes it could retrieve from you, both currently and in the future. Remember, the IRS considers all your assets, including cars, bank accounts, income, property, living expenses, and other details.
An Offer in Compromise is usually granted if there is some legal dispute over the amount of your tax debt, if paying in full would create unfair hardship or if the IRS doubts it could ever fully collect the total tax debt from you.
If you are working with a trusted tax relief firm, they will prepare your Offer in Compromise documents and handle negotiations with the IRS.
Be Prepared for Outcome(s)
Your Offer in Compromise application will result in one of three outcomes: it will either be accepted, returned, or rejected.
If your application is accepted—if you or your tax relief firm can negotiate an Offer in Compromise settlement—you need to fulfill your end of the agreement. You will be accountable for making payments on schedule and filing your taxes consistently for the next five years.
If your Offer in Compromise is returned, you can fix the issues or missing information on your application and submit it again. If your Offer in Compromise is rejected, you have 30 days to file an appeal.
While it may be tempting to apply for an Offer in Compromise on your own, you stand a far greater chance of success by working with an experienced team of experts.
At Franskoviak Tax Solutions, we have helped thousands of clients settle millions in tax debts using the Offer in Compromise program. With over 30 years of experience, we help our clients to maximize their settlement with the IRS.
We take pride in the work we do—handling Offer in Compromise documents and IRS negotiations—and the effort we make to help clients to understand their rights. We walk our clients through every step of the process, negotiating settlements while protecting their accounts and property from IRS seizures.
Headquartered in Michigan, with locations in St. Petersburg, Florida, Cincinnati, Ohio, and Indianapolis, Indiana, Franskoviak Tax Solutions provides comprehensive tax debt services with first-class expertise and a personalized boutique-style approach.