Regal Tax & Law Group, PC helps clients negotiate settlements with the Internal Revenue Service (IRS) through the Offer in Compromise (OIC) program. While this program is often touted as a way for taxpayers to settle their debts for “pennies on the dollar,” there is no magic wand for eliminating federal IRS tax debt.
The fact is that few people qualify for the OIC program. According to Accounting Today, the IRS accepted 25,000 offers in 2018. This is an acceptance rate of about 40 percent and only represents a small fraction of the roughly 16 million people and 3 million businesses that owed tax, penalties and interest to the IRS.
Ultimately, the program is designed for those who will never be able to pay back their tax debt with future income or assets; however, there are IRS alternatives that are better suited for most taxpayers. Our legal team is well-versed in the Offer-in-Compromise program and can help you determine whether this is the best choice for you.
While there are plenty of companies that offer tax debt relief services, some are not legitimate, charge thousands of dollars in fees, and may scam you. The best way to protect your interests and make informed decisions about your tax debts is to consult with an experienced San Francisco tax attorney.
At Regal Tax & Law Group, PC, we adhere to the highest ethical standards and will always put your best interests first. When you become our client, you will have confidence, knowing that our experienced Offer in Compromise attorneys are by your side. Please contact our office today for a free consultation to learn about all your tax debt relief options.
What Is An Offer in Compromise?
An Offer in Compromise is a form of tax relief you can seek from the IRS. The OIC program allows tax debts to be settled for less than the entire amount owed, as long as the IRS determines that:
- Paying the full amount would cause you serious financial hardship.
- The entire tax debt is uncollectible.
It is worth noting that the majority of offers require between 6 and 18 months for the IRS to resolve, and you may need about a month to gather all necessary items. While the offer is under consideration, you remain free from collection actions taken by the IRS, however, balances continue to exist and grow due to interest and penalties. If the IRS rejects your offer, you may be left with an even larger tax bill, which is just another reason hiring the right attorney is so important.
Am I Eligible?
The criteria for qualifying for an Offer in Compromise are very strict; the IRS will only consider an offer under the following circumstances:
- Doubt as to liability — There is a genuine dispute about the existence or the amount of the tax debt (this is a rarely used ground for an Offer).
- Doubt as to collectibility — Your assets and income are less than the full amount of the tax liability, and the IRS believes the tax debt may not be fully collectible.
- Effective tax administration — The full amount that you owe is not in doubt; however, making a full payment would create a financial hardship or exceptional circumstances would make doing so unfair or inequitable.
The IRS also provides an online OIC “Pre-qualifier tool” to help determine whether you have a valid basis to submit an offer. In short, if you answer yes to the following questions, you may not qualify for the OIC program:
- Do you have an open bankruptcy proceeding?
- Have you failed to file any required federal tax returns?
- Have you failed to make any required estimated tax payments?
- If applicable, have you failed to provide all required federal tax deposits for employment taxes?
Because this tool is only a guide and not applicable to all taxpayers (e.g partnerships, corporations) it is wise to discuss your financial situation with an experienced tax attorney.
At Regal Tax & Law Group, PC, we work with all types of taxpayers, including W-2 wage earners, self-employed individuals, and small businesses to resolve tax controversies. Given the high failure rate for Offers in Compromise, it is crucial to have the informed representation we provide.
Applying for an Offer in Compromise in San Francisco
Our tax attorneys will determine if you are eligible for the Offer in Compromise program, help you collect all the required financial information and submit your offer. Some items that are typically reviewed by the IRS include:
- Form 656 (Offer in Compromise Booklet)
- Forms 433-A (for individuals)
- Form 433-B (for businesses)
- Bank statements
- Mortgage statements
- Asset valuation statements (401k or IRA statements)
- Vehicle ownership statements
- Profit and loss statements
- Medical cost invoices
- Internal tax account histories
In addition, offers require a $200 application fee, which may be waived if you meet the IRS’ low income certification guidelines.
How is an Offer in Compromise Determined?
The IRS considers your ability to pay by looking to Form 433 for details about your income, assets and expenses, which determine your reasonable collection potential (RCP). This is the value of your assets (e.g. real property, vehicles, bank accounts), plus your excess monthly income after subtracting expenses. In sum, your offer must be equal to or greater than your RCP and the financial information you provide with your OIC application must substantiate the offer.
Paying the Down Payment in an Offer in Compromise
In addition to the $200 application fee, you must also make an initial payment based on your proposed offer. There are two payment options:
- Lump sum — You submit 20 percent of the lump sum payment upfront and propose to pay the balance in 5 or fewer installments over 5 months after the IRS accepts the offer.
- Periodic payment plan — You propose to pay the entire balance of your offer in 6-24 monthly installments and include your first proposed installment payment with the OIC.
It is important to note that the application fee and initial payments are nonrefundable; however, the amounts will be applied to your tax liability.
What happens if my offer is accepted?
If the IRS accepts your offer, you must meet all the terms of the agreement with the IRS, including filing all required tax returns and making all payments. Any tax liens will not be released until all terms have been completed. If the offer is rejected, however, our tax lawyers will determine whether you have a basis to file an appeal.
California State Tax Offer in Compromise
Although the California Franchise Tax Board also has an Offer in Compromise procedure in place, eligibility requirements are even more onerous than the federal IRS program. For this reason, our state tax attorneys work with small businesses to find innovative solutions to their sales and franchise tax issues.
Contact Our Experienced IRS Offer in Compromise Attorneys
The IRS Offer in Compromise program provides you with a chance to pay off your tax debt, however, the exacting eligibility requirements make the process can be lengthy and complicated. Moreover, the IRS is under no obligation to accept your offer. If you are involved in a tax controversy and are considering an Offer in Compromise, don’t go it alone. Contact Regal Tax & Law Group, PC to discuss your tax debt relief options.