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?
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 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.
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.
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 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.
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.