Offer in Compromise/ Tax Settlement Information
Contents:
- What Is An Offer in Compromise?
- Do I Qualify for an Offer in Compromise?
- Can a Business File an Offer in Compromise?
- How Long Does an Offer in Compromise Take?
- How is an Offer in Compromise Calculated / How Much Should I Offer?
- How Long Will I Have to Pay My Offer in Compromise Settlement?
- Does Penalty or Interest Accrue on My Settlement?
- Does an Offer in Compromise Appear on my Credit Report?
- Offer in Compromise vs. Bankruptcy
- What is an Effective Tax Administration Offer in Compromise?
- What is a Doubt as to Liability Offer in Compromise?
- I Think I Qualify -- What Should I Do?
- I Don't Know If I Qualify -- What Should I Do?
What is an Offer in Compromise?
The Offer in Compromise Program was established to assist taxpayers who are unable to pay their IRS back tax debt in full. The most common offer in compromise is the Doubt as to Collectability Offer in Compromise, meaning that you are trying to convince the IRS that you can never pay your debt in full.
The IRS will accept an Offer in Compromise based upon "reasonable collection potential", meaning what they reasonably expect they can collect from you within the remaining statute of limitations on your debt. The goal of any Offer in Compromise negotiation is to convince the IRS that this number is as small as possible -- something our Tax Attorneys, as Offer in Compromise experts, excel in doing.
The IRS evaluates reasonable collection potential and their willingness to accept an Offer in Compromise based upon a complete review of your financial situation including income, expenses, assets, and liabilities. They will only accept an Offer in Compromise if you can prove to them, through this disclosure, that you will never be able to pay the debt in full.
Beware of companies promising a “pennies on the dollar” settlement. The Offer in Compromise is not for everyone and many requirements must be met before the IRS accepts an Offer In Compromise tax debt settlement.
Do I Qualify for an Offer In Compromise Tax Relief Settlement?
This is a difficult question to answer without knowing the facts of your case. The best way to find out is to call us and go through one a consultation and we will determine the likelihood of an Offer in Compromise success. If we do not think the IRS will accept an Offer in Compromise, we will give you some alternative options that may produce savings on your tax debt.
We will always complete this preliminary review of your finances and a detailed review of your IRS account before accepting your case. This ensures a high likelihood of success and is done upfront at no cost or obligation to you. In this review for the Offer in Compromise program we will also provide you the Collection Statute Expiration date on your accounts because if this date is near it’s best not file an Offer in Compromise and let the debt expire.
CTC knows what “red flags” to look for when considering an Offer in Compromise and will provide other options if an Offer in Compromise is not possible. This financial review and in depth tax debt analysis separates us from other IRS tax relief firms. It also keeps our acceptance rate for the Offer in Compromise program at the highest level and keeps our customers satisfied.
Can businesses file an IRS Offer in Compromise?
The IRS has an Offer in Compromise for businesses called the In-Business Offer in Compromise. This is the most difficult Offer in Compromise to negotiate and will require the help of an experienced Tax Attorney. The main difference between an Offer in Compromise for an individual and an Offer in Compromise for a company is that the IRS will require a Company to pay at least the Trust Fund portion of taxes in any settlement (the amount that was withheld from employee paychecks in the case of back payroll taxes). Because many companies cannot afford to do so, an Offer in Compromise is often not a viable solution for businesses.
Oftentimes, a small payment plan or a corporate restructuring is a more feasible solution for businesses, rather that pursuing an Offer in Compromise. Call us today for a free consultation and we will review what options are best for your particular situation.
How long does an IRS Offer in Compromise take?
A tremendous amount of tax debt savings available through the Offer in Compromise, but it is a strenuous tax debt relief strategy. It can take from six to twelve months to successfully negotiate an IRS Offer in Compromise. Your assistance in collecting necessary documentation is required to get your IRS Offer in Compromise accepted as quickly as possible.
If your Offer in Compromise is initially rejected by the IRS, you can exercise appeal rights to have the IRS take a second look. If you choose to do so, the complete process can take over two years in some cases before the IRS will make a final determination on your Offer. Patience is key if you want to be successful with your Offer in Compromise.
The good news is that for the entire time an Offer in Compromise is pending, you are protected from enforcement action from the IRS. They cannot levy or garnish you while an Offer is pending, so many times this translates into months or years of protection for your clients while we wait for their decision.
How is an Offer in Compromise Calculated?
Your Offer in Compromise tax settlement is calculated using a complex formula taking into account the equity in your assets and projected future income. We have prepared a Free Offer in Compromise Guide that you can download on this site which provides more Offer in Compromise guidance.
Download Our Free Offer Guide for a More In-Depth Discussion
How long will I have to pay my Offer in Compromise Settlement?
The length of time given a Taxpayer to pay off their Offer in Compromise settlement depends on which settlement option the Taxpayer chooses. There are three options for repaying an Offer in Compromise tax settlement.
- Cash Offer in Compromise: Tax debt settlement amount must be paid within 5 months of acceptance.
- Short Term Deferred Offer in Compromise: Tax debt settlement must be paid over 24 months.
- Long Term Deferred Offer in Compromise: Tax debt settlement must be paid off over the number of months remaining on the statute of limitations
Will Interest and Penalties accrue if I choose Deferred Payment Offer in Compromise?
No, whatever settlement the IRS agrees upon is the final number -- your settlement does not accrue interest. However, if you default your Offer in Compromise (do not meet the terms of the Offer in Compromise agreement) then the IRS will rescind the Offer, and they will assess you all of the penalties and interest that would have accrued had a settlement not been accepted.
Will an IRS Offer in Compromise appear on my Credit Report?
No, an Offer in Compromise will not appear on your credit report. The Offer in Compromise has none of the negative ramifications of filing bankruptcy.
Although the Offer in Compromise does not appear on your credit report the IRS Tax Lien may already be filed which will definitely damage your credit score. Once the Offer in Compromise negotiation is complete and the tax settlement is paid in full the IRS tax lien will be released and listed as paid in full with the credit bureaus.
The tax lien itself remains on your credit report for 7 years after the date the lien was released. In the case of an Offer in Compromise, this would be 7 years after you pay your agreed upon settlement.
Offer in Compromise versus Bankruptcy
There are many advantages of the Offer in Compromise over bankruptcy. Most IRS tax liabilities are not dischargeable in bankruptcy, meaning that the only option is to set up a payment plan through the courts.
A bankruptcy will stop IRS enforcement including garnishments and levies, but so will an Offer in Compromise, so there we never recommend filing bankruptcy for the sole purposes of stopping enforcement.
Also, you can complete an Offer in Compromise without ever going to Court. The IRS Offer in Compromise is strictly administrative so even the appeal of a rejected Offer in Compromise can be handled over the phone.
There are times when a bankruptcy is more effective than an IRS Offer in Compromise, like when there are general creditor liabilities, the taxes liabilities are dischargeable or there’s a reason the Offer in Compromise will not work for you.
For example, certain assets may be protected in bankruptcy court (such as a retirement account) but in an Offer in Compromise the IRS may demand liquidation of the account.
What is an Effective Tax Administration Offer in Compromise?
The Effective Tax Administration (ETA) Offer in Compromise is similar to the regular offer in compromise in that your tax liability will be compromised and as long as you live up to your end of the Offer in Compromise the tax debt will be forgiven.
The main difference between an ETA and regular Offer in Compromise is that the IRS will accept the Taxpayer’s Offer in Compromise even if the Taxpayer has sufficient equity in his or her assets to pay the IRS, provided the Taxpayer needs those assets to meet his or her basic living requirements. This Offer in Compromise program is mainly for elderly or disabled Taxpayers.
With an Effective Tax Administration Offer in Compromise, you are trying to convince the IRS that although you have the ability to pay your taxes in full, it would be unfair to force you to do so. It is extremely rare for an ETA Offer in Compromise to be accepted, but Colonial has had some success with them.
What is a Doubt as to Liability Offer in Compromise?
A Doubt as to Liability Offer in Compromise is utilized when the Taxpayer does not believe they actually owe the back tax liability. As opposed to the traditional Doubt as to Collectability Offer in Compromise where the Taxpayer is contending they can’t pay the tax debt in full, in a Doubt as to Liability Offer in Compromise the Taxpayer is contending they don’t owe the back tax liability to begin with. There are two types of Doubt as to Liability Offer in Compromises:
- Examination issue Doubt as to Liability Offer in Compromise: These arise when a Taxpayer believes that a mistake was made in examination that resulted in a tax liability.
- Legal or factual issue Doubt as to Liability Offer in Compromise: The most common Offer in Compromise submitted under these grounds will be in response to a Trust Fund Recovery Penalty Assessment. Here the Taxpayer’s Offer in Compromise will lay out both legal and factual grounds why their assessment of the Trust Fund Recovery Penalty was improper.
I think I qualify for an Offer In Compromise Tax Relief Settlement:
If you think you qualify for relief of your tax debt through the IRS Offer in Compromise settlement we encourage you to call, e-mail or complete the secure online tax consultation request. The Offer in Compromise is an excellent way to achieve a tax debt settlement and get into compliance with the IRS, but confirming your eligibility is a mandatory first step before pursuing the Offer In Compromise program for IRS tax debt relief.
There are many firms that promise everyone an Offer in Compromise without first checking to see if they even qualify. We caution you to beware someone who promises you an Offer in Compromise without first conducting a thorough review of your financial situation, you could be wasting your money!
The IRS historically has accepted only about 25% of the Offers in Compromise that are submitted each year.
I'm not sure if I qualify for an Offer In Compromise
Please download our free self-help guide to the IRS Offer in Compromise program.