Qualifying for an Offer in Compromise

Offers in Compromise always hold an allure to taxpayers with any sort of federal tax debt. It is for this reason that sham tax resolution companies get thousands of dollars out of desperate taxpayers looking to end their tax problem. People are promised the world and in return pay for services that typically lead to denied Offer, no appeal of the Offer and little to no explanation from the reason is was denied. As you can already tell, this makes my industry look really good for taxpayers…

Offers in Compromise at their most basic level are a simple computation: monthly disposable income multiplied by a factor of 12 or 24 plus available equity in assets equals total amount of the offer. The IRS uses this basic formula to compare to their other potential options for how much of a delinquent tax debt they can get out of a taxpayer. In most cases, the IRS will attempt to deny offers insistently if they feel confident they can get more money through some other pathway such as a monthly installment agreement or a levy on a taxpayer’s wages. Given that the IRS has 10 years to collect assessed tax, it can often be the case  that “in theory” the IRS can get more money through other means than an Offer in Compromise.

If you have tax debt, you might begin to consider the above equation and how you particular situation might factor in. Do you have significant amount of equity sitting in your assets: cars, house, stocks, etc? How much money do you have left over each month? What are you spending your money on? Do you really believe the IRS will consider your spending habits “allowable expenses?” What is the way the IRS can get the most of your tax debt without putting you, the taxpayer, in a state of financial hardship or negatively impacting the health and wellness of your family? These are important considerations to take into account if you are ready to end your tax problem. The IRS has well defined financial standards that they set to analyze each offer that is submitted to see how much disposable income and equity in assets a given taxpayer has. Understanding these standards and their exceptions is key to negotiating a successful offer.

However, outside of these standards are “facts and circumstances.” Can the IRS really get an extra $10,000 out of you in a monthly payment plan over the next 5 years when you are 65 and close to retirement? Is your retirement savings only going to last you another 5 years if you pay a good chunk of it to the IRS? Were you just diagnosed with a disease that will significantly increase your out of pocket health care costs? Do the IRS standards adequately represent the cost of housing in your area, or food, or utilities? Have you been hit by any of the wildfires sweeping across California and your ability to keep yourself afloat, let alone pay the IRS, has greatly declined?

We don’t have debtors prison (unless its a criminal matter). The threat of taking the IRS to court reminds them of this. Can it be argued with appropriate evidence that the extra $300 you spend on rent in coastal California is the cheapest rent you can find in the area? Keep this in mind, every $100 you reduce your disposable income by is saving you either $1200 or $2400 on your Offer in Compromise! Sure you have assets, but can you get a loan against them? What happens if you lose those assets? Without them would it be difficult to produce income or provide for your family? There is a byzantine of factors to consider and the IRS will gladly take the time to go through them all to get the best deal they can, so you better be prepared to as well. But don’t be discouraged! Sure it might take some work, and time, but if you feel like you do qualify you shouldn’t let the IRS walk all over you. That being said, there is a plethora of rules and laws to keep in mind, and appropriate techniques for how to go about presenting your Offer and painting your specific picture to the IRS. If you want the best possible result, then contact me and together we can get you the best outcome paying the least amount of money to end your tax problem.