Sometimes the Internal Revenue Service (IRS) will settle a tax debt for less than the taxpayer owes. The process is called an Offer in Compromise (OIC) and it allows taxpayers to resolve their tax issues while the IRS collects an acceptable sum within a reasonable period.
If you cannot pay a tax debt as it currently stands, call a local IRS collections attorney to explore whether this might be a viable option for you. If so, a Vienna offer in compromise lawyer could assist you in applying for the program
Both individuals and businesses can participate in the offer in compromise program. However, the program has several requirements that could disqualify a taxpayer from participating.
A taxpayer must have filed all their returns to date – anyone who did not file a return is ineligible for the program. The taxpayer must also not be in open bankruptcy proceedings and must have made all their estimated tax payments for the current tax year. If the taxpayer is self-employed and employs others, they must have made all the required federal tax deposits for their business.
The IRS considers a taxpayer’s ability to pay based on their income, expenses, and their existing assets. If paying the full tax liability is impossible or would create financial hardship, the IRS might accept a compromise for partial payment. A Vienna attorney could help a taxpayer complete their Offer in Compromise application to enhance their chances of success.
The OIC process may seem intrusive because the application requires disclosure of all financial assets and debts. The IRS will determine the taxpayer is able to pay, after considering their income, assets, and necessary living expenses.
The IRS will scrutinize the taxpayer’s lifestyle and determine whether their income, minus necessary living expenses, supports a higher tax payment than they are offering. Necessary living expenses include:
It does not include credit card debt, educational expenses, charitable contributions, or voluntary contributions to a retirement account.
Although the forms to apply for the OIC program are online, taxpayers benefit by working with a professional. A Vienna Offer in Compromise attorney could review a taxpayer’s financial situation and determine a payment amount that is reasonable. Taxpayers whose net worth is higher than their current IRS balance are not candidates for this relief.
Obtaining an OIC is a slow process. The IRS must investigate the taxpayer’s financial situation and determine that the agency is unlikely to collect the full amount owed. While the IRS is considering the application, which could end up taking months, the taxpayer must meet specific obligations.
An Offer in Compromise application proposes that the taxpayer pay a reduced amount in either a lump sum or installments. If they are not disputing their tax liability, they must send a deposit with their application. Taxpayers choosing a lump sum must send a deposit equal to 20 percent of the total with their OIC application. If the taxpayer elects to pay in periodic installments, they must include one monthly payment with their application and make another payment every month while the investigation and negotiations are ongoing. If the IRS rejects the Offer, it applies the all payments to the outstanding tax liabilities.
While the OIC is pending, the IRS will suspend collection activity on the tax debt. However, the taxpayer must file all tax returns and pay all new taxes due while the IRS considers the application. Failing to do so results in the rejection of the OIC.
If you owe tax that you cannot pay, the OIC process could offer a solution if you are eligible. However, only about one-third of applicants are accepted. Work with a Vienna Offer in Compromise lawyer to give yourself the best possible chance at striking the most favorable deal. Time is valuable, so reach out to our tax law firm at your earliest convenience.
Pontius Tax Law, PLLC is a tax law firm that strives to resolve sensitive tax problems through trust, dedication and value. The law firm was founded by John Pontius with offices in Washington, DC, Rockville, MD, Bethesda, MD, Vienna, VA, and Alexandria, VA. Mr. Pontius represents individual and business clients with sensitive and serious tax matters before the Internal Revenue Service and state taxing authorities. His client base is local, national, and international.
Over the course of his career, Mr. Pontius has represented businesses and individuals with complex tax issues in the following areas: FBAR examinations, offshore and domestic disclosures, FATCA, FIRPTA, tax planning, unfiled tax returns, release of tax liens and levies, trust fund recovery penalty, IRS and state audit examinations, as well as appeals, penalty abatement, U.S. Tax Court litigation, along with defense of tax fraud and evasion. If you require assistance from a tax lawyer, contact Mr. Pontius to discuss your situation.