If you owe a substantial amount of back taxes to the IRS and are looking for a way out, you’ve probably come across offers in compromise – but what exactly are they and can you handle them on your own? Are you considering an Offer in Compromise (OIC) to reduce your tax liability? You should strongly consider working with a local tax attorney to submit your offer.
While the Internal Revenue Service (IRS) provides general guidelines for offers, there are many details that can make or break your case. A tax attorney is familiar with tax law and can help ensure that all of the necessary documentation is included and that your offer is submitted correctly. Avoiding common mistakes can be the difference between success and failure when submitting an Offer in Compromise.
What is an offer in compromise?
An offer in compromise is essentially an offer you make to the IRS to pay a sum of money right now (or in installments) if the agency agrees to settle your tax liability. That means you could potentially settle back taxes for far less than you actually owed, and many people whose offers in compromise are accepted do just that.
Getting to that point, though, isn’t easy. Offers in compromise are notoriously difficult to get, but that might be because a lot of people who find out about them on their own are also trying to get one on their own. For reasons we’ll explain a bit later on, you should seek legal counsel that is familiar with tax law, to assist you with your offer in compromise.
Why would the IRS agree to settle my tax liability for less than it’s worth?
It might sound too good to be true, but it isn’t. The basic logic behind an offer in compromise – at least from the IRS’s perspective – is that if it’s more efficient and cost-effective to accept a lesser sum than pursue collective actions against a tax debtor, then it makes sense to do so.
The IRS is essentially doing its own cost-benefit analysis to determine whether it can get more payment toward your tax liability out of you with an offer in compromise than it would through an installment agreement or placing a levy on your bank accounts.
The offer must be a compromise
This is why you shouldn’t expect to get away with a stingy offer. While it’s true that some can settle hundreds of thousands in tax debt for a fraction of the full amount, if the IRS thinks it has a better chance of collecting more out of you by other means, it is likely to reject your offer.
If an individual or business retains a tax professional who has represented clients through tax disputes regarding state and local tax, they are more likely to navigate the situation in a manner where it is a “win-win” for the IRS and the client.
How can an attorney help me with my offer in compromise?
An attorney can help you throughout the entire offer in compromise process, beginning with preparing your offer and filling out a lot of important paperwork. Be sure to have all of your past tax returns filed by this point, as the IRS will not accept offers from those with unfiled returns for previous years.
Your local tax attorney can base your offer in compromise on the following:
- Doubt that you owe the amount of tax liability cited by the IRS
- Doubt that your full tax liability can be collected (your assets and income are less than your total tax liability)
- Effective tax administration (full payment of your tax liability would generate economic hardship or exceptional circumstances make full repayment inequitable)
Your attorney will assess your situation and determine which basis applies most to your situation and could increase the likelihood that your offer would be accepted. At this point, your attorney will also help you assess how much you should offer to pay the IRS and how those payments should be scheduled out if you don’t have the liquidity to pay a lump sum.
Your attorney will help you fill out the required forms, craft a statement, and draft an explanatory memorandum. Together, these materials will provide the IRS with a full picture of your financial situation and why you’re proposing an offer in compromise. Acquiring professional legal assistance can help you ensure that you provide a thorough amount of proof and evidence that can avoid requests for more information or an outright rejection of your offer.
Why tax planning is important
When preparing your taxes, it is essential to consider tax strategies for, both, state and local taxation. This can reduce your tax burden and save you money. For example, deferring income to the next year can help you pay less tax.
If you are retired or have a medical bill that you are expecting to pay in the future, deferring income may be the best option for you, especially regarding your income tax.
Maximize your chances of IRS accepting your offer in compromise!
While assessing whether or not to accept an offer in compromise, the IRS considers a number of factors, including the taxpayer’s assets, present and future income, and the value of assets transferred to third parties.
For most collections, the IRS will evaluate assets at their current market value, but it may also take into consideration the collectability of the taxpayer’s assets.
In order to maximize the chances of success, it is essential to understand the rules and requirements of an offer in compromise. Many people believe that it is better to spend down their assets before making an offer, but this may not be the best approach. While you do not want to risk rejection by the IRS, there are some actions you can take to increase your odds.
How does tax planning affect your income taxes?
Tax planning is an essential component of financial planning, particularly when it comes to income taxes. Proper planning can help you make the most of tax breaks that are available to you. It can also help you save money.
One area where you should pay extra attention is deductible expenses. For instance, if you own a home, you can usually claim more than the standard deduction.
What if you own a business?
As a business owner, you need to be aware of the different income tax laws in your state. The deadlines for filing income taxes are April 15 and December 31. If you miss the deadlines, you may face penalties and interest.
This is the most important tax that you need to be aware of when it comes to financial planning. There are different income schedules for different kinds of income, and there are also deductions and exemptions that can decrease your taxable income.
As a business owner, it is also important to be aware of payroll taxes, state sales tax, real estate tax, franchise taxes, and any other local taxes that might affect your business and it’s income reporting.
The importance of working with an attorney that is familiar with your local tax law
Hiring a local tax attorney can save you from a lot of hassles and time. A tax attorney is familiar with all the tax laws and codes, and can advise you on the best strategy to use in your case.
Negotiating with the IRS can be time-consuming and requires extensive research on your part. Working with a tax attorney in the offer in compromise process can save you valuable time and prevent future tax trouble.
When choosing a tax attorney, you should look for someone with experience in the area you live in. Tax attorneys are well-versed in the tax code, and they can help you with issues with the IRS, state and local governments agencies, and more. They can also represent you in a court of law, if need be.
Find an attorney with a local tax practice
You can work with a tax attorney to negotiate a reduced amount for your unpaid tax bill. The tax attorney will examine your financial situation, including your income and assets. He will also assess your back taxes and assess your ability to pay.
An agreed upon settlement will forgive some of your tax, but may require you to file future tax returns and stay current on future liabilities. A tax attorney can help you determine whether you qualify for an Offer in Compromise.
An offer in compromise being rejected could cost you
An offer in compromise is a complex process wherein a taxpayer agrees to settle their tax debt for less than the full amount owed. In order to successfully negotiate an offer in compromise, the taxpayer must provide the appropriate documentation proving their inability to pay the debt.
If the taxpayer fails to do so, the IRS can garnish their wages. Additionally, state and federal tax authorities can place liens on their property, making it impossible for the person to sell their property. If you don’t have all of your ducks in a row when you present you case to the IRS, they could potentially reject your offer.
While there’s no guarantee that the IRS will accept an offer in compromise, working with an attorney can help you increase your odds of success and getting the tax liability relief you need. At Damiens Law Firm, PLLC, we can provide assistance with your offer in compromise to help you improve your chances of getting the financial freedom you may have not thought was possible.