If you owe federal and/or state taxes, interest, and penalties that you cannot afford to pay, either now or in the foreseeable future, we can help you negotiate to pay a lower amount (an "Offer in Compromise") to clear the debt. It is important to understand that the Offer in Compromise program is only open to taxpayers who qualify, and this program is not for everyone facing tax debt stemming from back taxes, interest, and penalties. Therefore it is helpful to review what the OIC program is about and what its basic requirements are.
For many years the government has recognized that some people who owe them large amounts of tax debt will never be able to repay it. Rather than waste their time trying to collect on a debt that can't be entirely repaid, tax authorities like the IRS will often agree to accept less than the full amount of the tax debt and write off the rest, allowing an indebted taxpayer the chance to get their financial life back in order. The Offer program benefits the IRS and taxpayers alike: the IRS will collect a portion of the debt owed over a shorter period of time, and the taxpayer can begin to rebuild their financial life free from debts they cannot hope to ever fully repay. If you have state tax debt, many states (but not all of them) will also allow you to resolve it via an an Offer in Compromise program that works in a roughly similar way to the federal Offer in Compromise program. The precise details vary from state to state, so the following discussion focuses on the IRS program.
The idea behind the OIC program is simple: you prove to the IRS that, given your current assets and income stream, you cannot afford to fully repay the tax debt you owe them. However, getting into the program is not so simple, and requires completing extensive paperwork about your current assets, income, and expenses, as well as meeting other conditions.
The first step involves calculating your current ability to pay. You must document your assets (such as your house, car(s), bank accounts, investment accounts, and so on), determine their current value, record your current income from all sources (your wages, commissions, business income, etc.), and list your "allowable" expenses (basic household needs, health care, child support, and certain other payments). The IRS uses government statistics for average standards of living to determine which expenses are "allowable" and which are not. Their definition of "allowable" may not correspond to your current standard of living. For example, the IRS recognizes that you need to eat three meals a day, but they don't consider it "allowable" for you to have dinner at a fancy restaurant every night if you want to qualify for the OIC program. Once you can show that your assets (at their discounted value) and your disposable income (that is, your current income minus your "allowable" expenses) is insufficient to repay the amount due, then you proceed to the next step, which is calculating the Offer amount.
Now that you've determined how much disposable income and assets you have that can be used toward your tax debt, the second step is deciding what kind of Offer to make to the government. There are two options. One option would be to make a lump-sum offer. This entails paying 20% of a lump sum up front to the IRS when you file the Offer, and the remainder within five months after the Offer has been accepted. In other words, you will need to be able to raise a large sum of money if you want to make a lump-sum offer. The other option would be to make a periodic-payment offer. This entails making 24 months of periodic payments to the IRS, starting when you submit the Offer. Note that both options come with some risk: the IRS requires you to pay them a portion of your debt when you submit the Offer, but there is the possibility that once they review your Offer, they won't accept it. In other words, whatever you pay them when you apply to the OIC program is non-refundable even if they don't accept your Offer.
There are some additional conditions about which you should be aware before deciding whether or not the OIC program is a possibility. First, before you can be considered for the IRS OIC program, you must be current with all filing requirements―if you haven't filed returns or are behind on certain payments, these issues must be cleared up first. Second, you cannot be part of an open bankruptcy proceeding. In other words, an Offer in Compromise is not for someone who is planning to file for bankruptcy. Most importantly, while your Offer is being evaluated (which might take a year or longer―see our FAQ), you must make all required payments associated with your Offer, and must continue filing and paying all taxes (such as quarterly estimated tax payments).
If the IRS fails to make a determination about your Offer within two years of receiving it, your Offer will automatically be accepted. Otherwise, the IRS will review your Offer and either accept it or reject it; during this period of determination we will continue to advocate on your behalf.
If your Offer is accepted, you must remain current on all filings and payments for the next five years. If you do this successfully, after five years your tax debt is discharged. But if you don't do this, your OIC is no longer valid, and you're back at square one (though at least you've paid down some of your tax debt).
If your Offer is rejected, you may appeal within 30 days. This is an administrative appeal, and does not lead to litigation in court. If your appeal is still rejected, you are permitted to submit a new OIC if and when your situation changes. Though every situation is different, according to recent IRS statistics, less than 50% of taxpayers who submit an Offer to the IRS are accepted into the OIC program (see footnote). An experienced tax attorney can help you navigate this challenging process.
Now that you've read more about the Offer in Compromise program, get in touch with us for a free consultation about your situation. Gold Path Tax can help you determine whether or not you should file for an Offer in Compromise, and can help you present your circumstances to the IRS and/or state tax authorities in the most complete and accurate way. We will carefully review your entire financial picture and work with you to develop the best possible case for why you should be allowed to join the OIC program(s) and pay less than what you owe. After you submit an Offer, we will also help you remain eligible during the lengthy review period and afterward, and can help you appeal an adverse decision or submit a new OIC if and when it is appropriate. However, because only the IRS and/or state tax authorities decide who they will admit into the OIC program, we cannot guarantee results, and any tax resolution firm that claims otherwise is misleading you.
If you are facing tax debts you can't pay and think an Offer in Compromise might be an option for you, please contact Goldie Greenstein, our Managing Attorney, to discuss your case right away. Again, initial consultations are free of charge. Ms. Greenstein can be reached by phone at 248-246-1154, or by e-mail at firstname.lastname@example.org.