Offer in Compromise

You can reduce your tax debt to “pennies on the dollar” by submitting an Offer of Compromise to the IRS. To get an Offer in Compromise on taxes is not an easy process though. There are IRS guidelines for an Offer in Compromise.

What are the requirements for qualifying for an Offer in Compromise? You must prove to the IRS that you can’t ever afford to pay off your debt, or prove that paying off the debt in full would cause you undue hardship for yourself or your family. Following is the step by step Offer in Compromise process. As you can see, getting an Offer in Compromise can be a long and complicated process, but Tax Defense Network can take the burden of dealing with the IRS away from you.

1. You need to do an income and lifestyle analysis. IRS guidelines for an Offer in Compromise require a thorough investigation into your life, and you need to be prepared. You will need to determine what your income is. You need to figure your basic monthly expenses. You need to inventory your assets and figure out how much equity you have in them.

2. What does the IRS consider basic monthly expenses? Your basic monthly expenses include mortgage/ rent, utilities, payment on a single family vehicle, food, basic clothing. Your monthly expenses that are not considered basic by the IRS: credit card payments, any luxury items such as boats, other cars, other property…in short any thing that you “could” live without.

3. Your income after all basic expenses have been allowed for is called your Monthly Disposable Income or MDI. The formula the IRS uses to see if you might qualify for an Offer in Compromise is: MDI x 48 + liquid value of assets. If that total is more than your IRS tax debt, you will not qualify for an Offer in Compromise on taxes.

4. An exception to assets. Do you have a spouse? If so, then that might complicate your Offer in Compromise process. Are you trying to get an Offer in Compromise for your tax debt, or is it a “shared” tax debt with your spouse? If you’re just trying to get your tax debt settled, then the liquid value of your assets is figured a bit differently. Any property or assets that is in your spouse’s name only is considered separate property and doesn’t have to be added to your assets on an Offer in Compromise application.

5. Let’s say you do qualify…you still have to submit to the IRS’s income and lifestyle analysis. You then have to submit the paperwork to apply for an Offer in Compromise. The paperwork is very complicated, and Offer in Compromise statistics show that the majority of Offers in Compromise are rejected because of a mistake on the paperwork.

6. Your Offer in Compromise request can take a year or longer to be processed by the IRS, and even if you’ve done all your homework you still may not meet the IRS guidelines for an Offer in Compromise. After all, only 2% of all applicants get approved for an Offer in Compromise.

7. Let’s assume your Offer in Compromise is accepted, and you’re able to get your IRS tax debt reduced from $40,000 to $4,000. While that is exciting news, you’re not done yet. In order to get the Offer in Compromise you have to commit to a five year contract with the IRS. During those five years you have to file on time every year. If you owe any further tax debts you have to pay them immediately. Failure to live up to the contract will result in the entire original tax debt being reinstated plus interest and penalties.

Now you know how to get an Offer in Compromise. The tax reduction specialists at Tax Defense Network will further help you along that long road to successfully submitting an Offer of Compromise to the IRS.