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Offer in Compromise

Offer in Compromise

The Internal Revenue Service (IRS) Offer in Compromise is a life-saver for those individuals who owe a significant amount of money. It is a program in which a taxpayer settles his or her debt with the IRS for a fraction of what is owed. It can be difficult to qualify for but will reduce your tax liability significantly more than other avenues. Allied Tax Advisory Group can review your situation and determine if you may qualify.

There are three circumstances in which a taxpayer may qualify for an Offer in Compromise:

  1. If there is doubt as to collect-ability, in other words, is if there is a doubt that the taxpayer could fully pay the tax liability.
  2. If there is doubt as to liability, meaning if a legitimate doubt exists that the assessed tax liability is correct.
  3. If there are exceptional circumstances that would allow the IRS to reconsider.

Income can have some effects on your offer in compromise, the IRS has no set rules that limit an offer in compromise to certain income levels. Whether you make $50,000 or $500,000, the IRS guidelines will not make you ineligible for settlement. The IRS has living expense guidelines that limit how much you can spend to have an agreement on your offer in compromise. The amount of your settlement is configured by how much the IRS thinks they can collect from your cash flow (your earnings less your monthly living expenses) over the time they have to collect the debt (10 years from the date you initially owed the IRS money).

You can qualify for an offer in compromise if your cash flow multiplied by the number of months left to collect a debt is less than what you owe. But, if your monthly cash flow can fully pay what you owe then your offer will be rejected. In an offer in compromise, it is important to work with qualified professionals that can fit into the IRS’s world to have success in settling your debt since it is often your world vs. the IRS’s world.

Do You Qualify for Offer In Compromise Consideration?

Unfortunately, not everyone can get a reduction on their tax bill. To qualify, you must show the IRS one of the following conditions exist:

  • Your full tax bill would cause an economic hardship or would be inequitable.
  • The IRS has “doubt as to collectibility” this means there is some doubt as to whether the IRS can collect the tax bill from you now or in the future.

How much Should you Offer?

To figure out the amount to offer you can follow instructions on Form 433 to come up with a minimum amount. Your calculation basically includes:

  • The “net realizable value” of assets + your excess monthly income after subtracting monthly expenses from monthly income.

To find out if you may be a candidate for the Offer in Compromise program, contact the professionals at Allied Tax Advisory Group today.

If Your Offer is Rejected- Don’t Give Up

The IRS usually rejects offers for a couple of reasons:

  • Offer is too low – if the offer is too low, the IRS will state the amount that is acceptable. You are entitled to a copy of the report that lists the factors that caused the rejection.
  • You have been convicted of a serious crime.

After you find out the reason you were rejected, resubmit the offer. The officer can help you with procedures and come up with a way to make the offer acceptable. To resubmit an offer, fill out Form 656.

Appeal a Rejected Offer in Compromise 

To formally appeal a rejected offer in compromise, send in a letter or call the person who rejected the offer. To start this process formally, file an IRS Form 13711 within 30 days of the date the offer was rejected.

See IRS Fresh Start Initiative.

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