If you have a tax problem with the IRS you need to exercise your legal rights and consider submitting an Offer in Compromise. The amount of money you owe the IRS is not relevant. Instead, what is important is your financial ability to pay your tax owed. You must prove two things to the IRS before they will accept your Offer in Compromise. First, you must prove your asset value is low or nominal and second, your monthly allowable expenses equal or exceed your monthly income. If you meet these two criteria, you may qualify for a reduced settlement with the IRS.
You must determine your asset value before you submit an Offer in Compromise. The IRS will not accept an Offer in Compromise for an amount less than your total equity value. The equity you have in an asset is the value of the asset minus the liability you owe on the asset. For example, if your home is worth $100,000 and your loan against the home is $50,000, you have $50,000 in equity value in that one asset. The total equity in all of your assets must be determined and be LESS than the total tax you owe.
You will need to determine if your monthly allowable expenses equal or exceed your monthly income. If your monthly allowable expenses equal or exceed your monthly income, and your asset value is low or nominal, you may submit an Offer in Compromise. An experienced tax professional can help you decide if you qualify for an Offer in Compromise. The IRS mandates that you cannot use all of your monthly expenses when you calculate whether your monthly expenses equal or exceed your monthly income. The IRS only allows you to use allowable monthly expenses. The IRS divides monthly allowable expenses into necessary expenses and conditional expenses. This is an allowable expense. The IRS has mandated monetary limits on some allowable expenses. As a result, you will not be allowed to claim the entire amount you spend on certain allowable expenses. When you are calculating whether your monthly allowable expenses equal or exceed your monthly income, you must be certain that your actual expenses do not exceed the IRS monetary limits for that expense as mandated by the IRS.
Filing all Unfiled Tax Returns Required.
The IRS is extremely rigid when it comes to filing all of your federal tax returns as a pre-requisite to filing an Offer In Compromise. The IRS is unlikely to accept your Offer in Compromise unless all of your federal tax returns have been filed. The IRS agent who will handle your Offer in Compromise will check your IRS files and records to find out if you have filed all of your federal tax returns. The IRS will not accept your Offer in Compromise if you are not current or have failed to file all of your federal tax returns. Being current and having all of your federal tax returns filed is critical to having your Offer in Compromise accepted. This is an extremely important aspect of this process. There is a $150 filing fee that must accompany any Offer in Compromise.
Withholding of Collection Action when An Offer In Compromise is Filed.
The IRS will usually stop collection actions against you after you submit your Offer in Compromise. According to the IRS, all collection activity must be stopped if the IRS believes that you submitted your Offer in Compromise in good faith.
How is Good Faith defined? Good faith means that you submitted your Offer in Compromise for the purpose of settling your back taxes and not for the purpose of stopping or hindering IRS collection actions. However, in many instances, the IRS illegally continues to enforce collections against a taxpayer after the Offer in Compromise has been submitted. Typically an experienced tax professional may be able to help you release collection action by the IRS.
After the Offer In Compromise is Remitted
If your offer is accepted, the Internal Revenue Service will ask you to pay the reduced amount suggested in your offer. After you have paid the offered amount, the Internal Revenue Service will likely release any liens against you on your property.