7 IRS Offer in Compromise Tips to Settle Your Back Tax Debt

irs offer in compromise

An IRS Offer in Compromise may be a great way for you settle your tax debt with the IRS.

The bad news is that, a large percentage of the “Offers" submitted to the IRS for consideration are rejected for a number of reasons. 

Let’s face it, the Internal Revenue Service is not going to make it easy for you to wipe away a large percentage of your tax debt, along with penalties and interest.

Here are 7 strategies and suggestions to save you frustration and money during the process of getting your IRS Offer in Compromise accepted:

Don’t Submit a “Frivolous” Offer

I always tell my clients that you are NOT negotiating a car with a salesman at a car dealership. You cannot write a low ball number on your 656 IRS form and expect that the IRS will accept it.

The acceptance or denial of an IRS Offer in Compromise is based upon an analysis of your current assets and your cash flow (disposable income). Your cash flow consists of your income versus your allowable expenses.

The IRS will consider your monthly disposable income multiplied by twelve months or twenty four months depending upon the type of offer being submitted.

You must have documentation that supports the “numbers” that are submitted on your IRS Offer in Compromise. The IRS requires 3 months of documentation. You are also required to provide 20% of the Offer amount with your application.

Once you have submitted the above documentation, the Offer is considered processed by the IRS. Now the fun begins. The negotiation phase of the Offer in Compromise approval phase begins when the Offer specialist contacts you or your tax attorney.

If you fail to do all that is required, your offer will be rejected. You will be required to begin the process all over again with a new $186 application fee as well as a new 20% down payment.

Don’t Wait Until You Have More Money

It may not sound like the right strategy. However, the best offer in compromise you will be able to submit to the IRS or New York State will be when you have the least amount of assets and income.

If you need to borrow money from a family member or friend, it may be something worth thinking about to get your tax debt, including penalties and interest, reduced.

The IRS will look at one year of disposable income if you can off the tax debt in 5 months and two years of disposable income if you can pay the offer in 24 months.

It is important that a professional help you determine your disposable income. If you make a mistake on your 433-A or 433-B IRS form, it can cost you thousands of dollars.

It can take 6-12 months to have an Offer Specialist assigned to your case. If all of a sudden, you get an increase in income or inherit some money, the terms of the Offer may change upon review by the IRS.

Also, the IRS changed the offer in compromise rules  to benefit taxpayers. However, no one know if future changes on the horizon will be as beneficial. Therefore, submit your OIC sooner vs. later.

File and Pay Your Taxes for Five Years After Acceptance 

The IRS  requires that you file and pay your taxes for five years following the acceptance of your Offer. Failure to do so will void the agreement and you will be back to square one again, with the same tax debt, penalties and interest.

File and Pay Your Quarterly Estimated Taxes

As discussed above, it can take up to 12 months for the IRS to review your Offer in Compromise application.

If you are self employed or work on commission, you need to stay current with your estimated taxes, paying them every 3 months, while your offer is pending.

When your offer is reviewed, you will need to be current in your filings as well as quarterly payments. Failure to do so will sink your chances of acceptance.

Make Sure Your “Numbers” Are Correct

You have to make sure that the Collection Information Statement is prepared correctly. The IRS may accept certain expenses that you are not aware of. A tax attorney can explore with you specific strategies to get the best tax debt settlement.

As such, it is important that a tax attorney review your assets, income, and expenses to determine the most optimal resolution option based upon the specifics of your finances. 

Before you speak to the IRS, “know your numbers” or hire a tax attorney that will advocate for your offer or other tax debt reduction strategy.

Appeal the Denial of a IRS Offer in Compromise

Offer specialists are not always right. If you know your numbers and you think that the IRS or the State is incorrect, your tax attorney can advise you if an appeal is worthwhile. The collection appeals program may the right strategy for you.

Consider All  Of Your Tax Settlement Options

You may not qualify for an offer in compromise.

However, you may qualify for a partial pay installment agreement, where you pay less than you owe until the collection statute runs out or a properly structured installment agreement.

You may also qualify for a reduction of penalties.

If you call the IRS, it is rare that anyone will suggest that you submit an Offer in Compromise, penalty abatement, or any other strategy to reduce or eliminate your tax debt. In fact, the IRS wants you to enter into the highest payment plan possible.

Unfortunately, many of our clients come to us after they have defaulted on payment plans with the IRS or New York State and are in a worse off position.

However, there is hope.

As you can see from the previous tips, there are a lot of pitfalls in dealing with the IRS or the State. Mistakes can cost you thousands of dollars as well as quite a few sleepless nights.

Let’s fact it, you are up against the government. Their employees advocate their interests, not yours. You are at disadvantage. You will be pressured and possibly bullied.

You need someone that will be your advocate and that will fight for you. Experienced tax attorney Charles Rosselli of the Tax Problem Law Center can help you. Dealing with the IRS and the State is all we do.

If you require helps settling your tax debt with an IRS offer in compromise, give New York tax attorney Charles Rosselli a call at (516) 620-5944 to discuss your tax problems today. 

Charles Rosselli, Esq.

Charles Rosselli, Esq., founder of the Tax Problem Law Center, is a New York tax attorney that focuses his tax law practice on helping individuals and businesses solve their IRS and NYS tax problems once and for all.