What Is an Offer in Compromise?
The IRS’ Offer in Compromise program is the only mechanism by which the IRS will agree to take less than what the taxpayer owes to resolve outstanding tax liabilities.
Do I Qualify for an Offer in Compromise?
The IRS will generally only accept an Offer in Compromise if the offered amount equals or exceeds the taxpayer’s reasonable collection potential. The reasonable collection potential is based upon a mathematical formula that determines the taxpayer’s future income earning potential and liquidation value of his or her assets. These two components are added together to determine the appropriate offer amount. Importantly, the IRS calculates the future income earning potential using the taxpayer’s allowable monthly expenses, which can vary depending on the location of the taxpayer.
You will only qualify for the Offer in Compromise program if your reasonable collection potential does not exceed your outstanding tax liabilities. Accordingly, if you owe the IRS $100,000 and you have $100,000 in equity in your residence or a $150,000 retirement account, you will likely not qualify for the Offer in Compromise program.
The IRS, in May 2012, significantly revised the terms of the Offer in Coml2romise I2rogram to make it more accessible to taxpayer’s struggling with large tax liabilities. The significant changes to the IRS’s i:nternal policies and procedures related to the Offer program dramatically reduced the offer amount that the IRS would be willing to accel2t to compromise all outstanding tax liabilities.
The attorneys at Terrence A. Grady & Associates are very familiar with these recent changes to the Offer program and will thoroughly review your situation and financials to determine mine whether you qualify for this very favorable tax relief program.
In determining the availability of Offer in Compromise program, it is important to remember that it does not matter how much you owe the IRS. Rather, all that the IRS considers is whether you will ultimately have the ability to repay the outstanding tax liabilities based upon this uniformly applied formula. Therefore, not all taxpayers qualify for the Offer in Compromise program and most taxpayers who do qualify will have to pay some significant amount of money in order to compromise the outstanding tax liabilities.
Learn more about qualifying for the Offer in Compromise program.
What payment options are available for the Offer in Compromise program?
There are generally two different payment options for an Offer in Compromise:
- Lump sum: The taxpayer makes a 20 percent down payment of the offer amount when the offer is submitted and pays the remaining portion within five months of the offer being accepted.
- Short-term periodic payment: The taxpayer agrees to pay the offer amount within 24 months of submitting the offer via monthly payments. These monthly payments begin as soon as the Offer is submitted.
How long will it take for the IRS to review my Offer in Compromise?
There is no standard amount of time that it takes the IRS to review an Offer in Compromise submission. Generally, we counsel our clients that the IRS will review the Offer for approximately nine to 12 months before making a determination. Per legal statute, if the IRS has not made a determination within two years, the offer will automatically be accepted. Importantly, however, during the entire pendency of the IRS’s review of a submitted Offer in Compromise. the IRS is precluded from taking any actions against the taxpayer to collect the amount owed.
Why “Pennies on the Dollar” Is Not Realistic
There are many agencies that claim to help people easily obtain offers in compromise with minimal “pennies on the dollar” payments. This is grossly misleading. The truth is, not everyone will qualify for an Offer in Compromise repayment plan. When you work with Terrence A. Grady & Associates Co., L.P.A., we will give you a realistic assessment of your position and the likelihood of success in obtaining an Offer in Compromise. If needed, we will help you explore other options to settle tax liabilities as well.
Contact Our Ohio Tax Settlement Lawyers
Contact our Columbus tax attorneys to learn if an Offer in Compromise is a realistic solution for you.