Have you ever heard of “Offer in Compromise”? An incredibly effective method that thousands of individuals burdened with tax debt with the IRS have used to eliminate thousands of owed dollars. This federal program allows you to settle your back taxes for less than the amount you owe. At times, this can be significantly less, depending on your socio-economic status.
There are several bases on which you can apply for an offer in compromise. The most common one is known as “Doubt as to Collectibility”. This is essentially stating that in a hypothetical situation in which you were to liquidate all your assets, the total amount would not satisfy the amount you owe the IRS. Additionally, you must prove that you cannot make payments consistent with current IRS payment plan guidelines.
Another basis for an application for this debt relief program is known as “Doubt as to Liability”. This situation only applies if you believe that you do not actually owe the IRS the amount that they claim you do. This could be the result of an error on either party, and you must go through a process to prove such.
Lastly, you can apply if you believe there is an extraordinary circumstance that would prevent you from paying what you owe, also known as “Effective Tax Administration”, or ETA for short. In this case, you would be required to provide supporting evidence with a narrative and documentation proving that payment would cause undue or severe financial hardship.
In order to determine if you can pay, as well as how much you may be able to pay, the IRS will generally assess these four components:
- Your ability to pay
- Your income
- Your expenses
- Your assets
Regardless of your reasoning for applying, the process entails an in-depth dive into your financials, prior tax returns, and surrounding circumstances. Working with a professional to help you along the way can make all the difference.
Below are some frequently asked questions we receive from clients:
Will I Qualify for Offer in Compromise (OIC)?
There are several caveats as to whether someone will qualify for an offer in compromise:
Generally, we must make sure that:
- You’re current with all tax return filings
- You are NOT in an open bankruptcy proceeding
- Your circumstances are such that an approval would be likely
Will an OIC affect my credit score?
A successful OIC application will actually POSITIVELY impact your credit score! Unlike bankruptcies which can lead to big hits on your score, the acceptance of an OIC by the IRS and the satisfaction of your debt will lead to an increase in credit score.
Won’t bankruptcy eliminate my tax debt?
No. In fact, almost all tax debts are immune to bankruptcy action. This means they will survive and continue to be an issue until you settle.
What is the Acceptance Rate?
In the year 2017, the IRS accepted 25K of 62K proposed OIC’s. That amounts to an approval rate of 40.3% approval rate. The average dollar amount of the accepted offers was $10,234.
If you owe $10,000 or more to the IRS, this is definitely worth exploring.
Some common reasons for rejection:
- The IRS believes they can get full payment from your future income – in which case the IRS will tell you an amount they think you can pay.
- You’ve been convicted of a serious offense or crime.
- You are not up-to-date/current on your tax filing
- You Failed to provide sufficient info proving your financial condition.
What else does the IRS look at aside from income?
In addition to income and expenses, be prepared to reveal:
- Bankruptcy Declarations
- If you are the beneficiary of a trust, estate or life insurance policy, and how much and when you might receive the money
- What’s in your safe deposit box
- Contents of your personal bank accounts, investments, available credit, life insurance policies that have a cash value
- Real estate, personal vehicles, and even intangible assets such as licenses, domain names, patents, and copyrights that still have value
If you are interested in seeing if you qualify for an offer in compromise, you may be asking yourself “What’s Next”?
If you’re not eligible for an offer in compromise or if your offer is rejected, look into debt solutions like settlement and consolidation. Often, they can save you money on other debts, freeing up cash to pay down your IRS debts.
Debt Consolidation and Debt Settlement
Debt consolidation and debt settlement are two terms often linked together, but they are two completely different ways to handle debt.
Debt consolidation means taking out a single loan to cover payments to multiple creditors. This is considered an acceptable way to get out of debt, but there are some drawbacks that should be investigated.
Debt settlement means offering a lump-sum payment to a creditor for less than what is owed. There are severe negative consequences for using this process to get out of debt.
If you can’t afford your bills, seek out professional help today. There are solutions for your debt problems.