Offer in Compromise Tax Debt Attorney
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Is your tax debt starting to cause serious problems? Are you getting collection notices, tax liens, levies, or garnishments? Do you want to get your tax problems behind you once and for all? For over 40 years, we have helped people like you settle their tax debts or set up payment arrangements.
We can usually tell you in a single one hour flat fee consultation whether you might qualify for a settlement. Don’t spend thousands of dollars with a national tax settlement company when you can find out for $295.00 what your chances are for settling or otherwise resolving your tax debt.
The Tax Debt Compromise Program
If you owe taxes, you may already be getting a lot of letters or notices from the IRS or ODR (Oregon Department of Revenue). You may also be getting a lot of offers of help from national tax settlement companies telling you that they can get you a settlement for pennies on the dollar. All you have to do is pay them $3,500.00 (or $5,000.00 or $7,500.00). Is this a scam or is it really possible to settle with the IRS or the ODR for a fraction of what you owe?
An Offer in Compromise is what the IRS calls this kind of settlement and it is not a scam. We have helped many people qualify to have thousands of dollars in taxes, penalties, and interest wiped out.
However, sometimes the big tax settlement firms will charge you a lot of money just to tell you that you have too many assets or too much income to get a settlement. Why not get an evaluation for $295.00 and find out what the tax compromise programs are and how an Offer in Compromise works?
To begin with, there are three different types of an Offer in Compromise; Doubt as to Liability (DATL), Doubt as to Collectibility (DATC); and Effective Tax Administration (ETA). Of these, by far the most common is the Doubt as to Collectibility.
The IRS won’t look at a Doubt as to Liability if the amount you owe has been the subject of a final determination through the appeals process.
The Effective Tax Administration ground is for rare circumstances when it isn’t fair to collect taxes that are owed.
Doubt as to Liability (DATL)
This is only when there is some genuine doubt as to whether you owe the taxes, so it isn’t available if there has already been a final determination of the amount owing. It should never be used if you agree with the IRS on the amount of taxes that you owe. An Offer in Compromise on this basis has to be for the amount that you agree is owed.
Doubt as to Collectibility (DATC)
This is the most common type of Offer in Compromise. If you can show the IRS that they are unlikely to be able to collect the taxes you owe over the remaining statute of limitations, usually ten years from the assessment date for the taxes, the IRS will consider a DATC Offer in Compromise. Basically, this kind of Offer in Compromise is available to people who cannot pay their tax debt because they don't have sufficient assets or enough income.
Effective Tax Administration (ETA)
This is used pretty rarely, mostly in circumstances where the taxpayer or a family member is seriously ill and will need all of their assets and income to cover medical or living expenses. It can also apply in unique circumstances where assets or income is needed for support or medical treatment for the taxpayer’s dependents. Basically, this kind of Offer in Compromise is for people who clearly owe the taxes and could afford to pay them but for whom it would be unfair to do so because it would leave them unable to deal with unique circumstances in their lives.
Qualifying For An Offer in Compromise
Getting an Offer in Compromise isn’t as simple as calling up the IRS and offering to pay the taxes if they will waive the interest and penalties.
There is a formal process that has to be followed, including forms that must be filled out and documents that have to be submitted. This includes proof of income and proof of some debts like car loans, mortgages, medical bills, installment agreements on state taxes, or court-ordered payments like child or spousal support or restitution. If you are self-employed, you’ll have to provide recent profit and loss statements and prove that you are paying sufficient estimated taxes.
It seems like you should be able to just talk to an IRS agent and offer, for example, to pay the taxes if they will waive the penalties and interest, but it never works that way because you have to go through the formal process and complete the necessary forms.
The forms for the Offer in Compromise include a financial statement that has to be filled out and the offer in compromise form itself. These are fairly long and complicated.
They have to be sent to the IRS with your first payment or deposit plus the processing fee. Then you have to wait for the IRS to get back to you. When they do, the first thing that they want is recent bank statements and recent proof of income.
Situations Where the IRS Won’t Accept Your Offer in Compromise
The first question or test that has to be addressed is whether the IRS will think that you can afford to pay the taxes you owe in full over the remaining ten years statute of limitations for collection. This is a very long time and so if you don’t owe a lot or make pretty good money, the odds are that you won’t make it past this very first hurdle. The IRS won’t accept your Offer in Compromise if they think that you can pay in full.
By the way, don’t fall into the trap sometimes recommended by tax settlement firms to let the tax debt you owe increase so that the IRS will think that you can’t afford to pay it in ten years and thus give you a settlement for much less. This is a very dangerous strategy because if it fails you would then owe tens of thousands more in taxes.
The IRS also won’t consider an offer in compromise if you have not filed all of your recent tax returns. This will be at least those for the last three years but often the IRS will require six or more years to have been filed.
They also won’t consider your offer if you are in an open bankruptcy case. The usual order of doing things, if you need both a bankruptcy and an offer in compromise, is to do the bankruptcy first and then the offer in compromise. The reason is that you do not want the debt that will be discharged in the bankruptcy to interfere with your ability to pay off the offer in compromise. You also don’t want to be forced into bankruptcy while your offer is pending because the IRS will then reject it and you will have to start again.
The IRS will also not consider an offer in compromise from someone who is required to but is not making estimated tax payments or is not paying the current payroll taxes for employees.
Special Circumstances
The IRS will sometimes consider an offer in compromise even though it is clear that you owe the taxes and have sufficient income and assets to pay them in full over the remaining portion of the statute of limitations.
Typically this is because of chronic illness but can also be a situation where an asset, like a retirement account, is needed to provide income to live on, but it can also be a situation in which a family member has mental health or psychological issues and your assets or income are needed to provide treatment, care, or support.
Process for The Tax Debt Compromise Program
The process should start with an evaluation of your chances of getting an OIC approved. This is best done by an attorney or accountant experienced with OICs. There are many people offering to do OICs who have not had a lot of them approved and so do not know what is involved, how much to offer, or what to do when the IRS almost inevitably initially rejects your offer.
You can hire us to evaluate your chances in a one hour $295.00 phone appointment. We can usually tell you in that amount of time whether there is a chance that you could get an offer approved.
If you hire us to do your offer in compromise, we will fill out the forms for you and collect the documents that have to be submitted. We determine together with you how much you should offer.
The forms are basically a financial statement covering your assets and liabilities and income and expenses. You have to understand how the IRS is going to evaluate things before you fill out the forms. For example, the IRS uses certain standards to determine how much is reasonable for you to spend on various categories of household expenses. You should know what these are so that you will know how the IRS is going to react to the budget you must include in the forms.
The offer amount is based on a combination of a percentage of your assets, less any debt secured by them, and a multiple of any income that the IRS thinks is available after their allowable expenses under these IRS standards.
The percentage is 80% for most assets but 70% for retirement accounts. The multiplier used for your available income is 12 if you are making a so-called lump sum offer or 24 if you are making an offer to be paid in monthly payments.
Once the forms, documents, first payment or deposit, and processing fee have been sent to the IRS, you usually have to wait 3 to 9 months to hear back from the IRS. It usually is quicker for wage earners than self-employed people.
When they do contact us, they first want updated documents including bank statements, paystubs, profit and loss statements, mortgage or car loan statements, and any tax returns that came due or were filed while the offer was pending.
After we supply the additional documents that are requested, the next step is usually for the IRS offer specialist to reject your offer and provide a chart showing how they disagree with your offer and supporting documents.
This is typically to say that you understated your income or the value of your assets or are claiming a debt or expense item that is outside of the IRS standards. The IRS offer specialist will usually either say that the IRS believes that you can pay the tax debt in full over the remaining statute of limitations or will give an amount for you to pay under a revised offer that they would be prepared to recommend be accepted.
We always try to negotiate at this point even while we work to refute the IRS contentions regarding your assets, liabilities, income or expenses on which the rejection is based, but it is very common that the Offer Specialist will not budge. In that case, we have to appeal and hope to negotiate with the IRS appeals officer.
Payment Options
Just like there are two basic components to an offer in compromise, a percentage of assets and multiple of available income, there are two basic payment structures to choose from for your offer in compromise. Each one has its own advantages and disadvantages.
Lump Sum Cash Offer
First there is the so-called lump sum cash offer. The IRS used to require that you send a check for the full amount of your offer. However, over time the IRS realized that it was easier to get people to submit offers and compromise if they made more options available for payment. The first possibility is a so-called lump sum offer. You must make a deposit of 20% down when you submit the offer in compromise paperwork. Then, the balance of your offer amount must be paid in five monthly payments after your offer is accepted.
If your income is a big part of the offer calculations, i.e. the IRS is likely to think that your income is more than what they think you can afford to live on, then a lump sum offer will be less than a periodic payment offer. This is because the lump sum offer uses a multiple of 12 times your available income, while the period payment offer uses 24 times your available income.
Periodic Payment Offer
The periodic payment offer is the other alternative. With this kind of offer payment structure, you must make a payment each month for 24 months. Most importantly, the first payment must be made with your offer in compromise paperwork and then you must continue to make a payment each month while the IRS is working on it.
Obviously, the monthly payment amount will be smaller when you are making a periodic payment than a lump sum offer because you are splitting the offer amount into 24 payments instead of splitting 80% of your offer into 5 payments. Often the period payment offer is used with larger offers or when you do not have assets to liquidate to fund your offer or an outside source like a friend or a family member who will help make the lump sum payments.
Appealing a Rejected Offer in Compromise
If the IRS rejects your offer in compromise, you will have the right to appeal. The IRS will send you a letter with a detailed explanation as to why they rejected your offer. Basically, this is a form that shows how they disagree with your calculations as to your income and assets. You can ask the IRS to reconsider by providing additional information or you can appeal.
Either way, you want to respond directly to the specific items that the IRS raises. They may say that you are including expenses that are not allowed and that therefore you have more available income or they may say that you are undervaluing assets and that your offer must be more in order to pay 80% of their value as part of your offer in compromise. Your request of reconsideration or appeal would have to directly address the reasons for the IRS rejection to have a chance of success.
Sometimes the IRS will return your offer in compromise without rejecting it. This is different from a rejection because you do not have the right to appeal. An offer and compromise could be returned by the IRS because you didn’t provide all of the documents required by the offer in compromise forms or if you filed bankruptcy while the offer in compromise was pending. If your offer is returned instead of rejected, you have to resubmit it to have it considered by the IRS.
Get Help With an Offer in Compromise
We highly recommend that you get help with your offer in compromise. It is complicated and the stakes can be huge. Getting an offer accepted could give you back your life.
This should start with a professional evaluation as to whether you have a reasonable chance of having an offer accepted. Many of the large national tax settlement firms will require that you pay a large retainer before they will look at your situation and tell you if you might qualify. We offer a one hour consultation for $295.00 in which we can tell you if there is a chance that you could have an offer accepted and, if not, why not.
You can retain us to handle the offer in compromise from start to finish and then we will handle all of the forms and paperwork and will do all of the communications with the IRS. This requires a retainer and then monthly payments to keep the retainer at the original amount, but the advantage is that we do all of the communications and the paperwork with the IRS and/or ODR.
There is also a way that you can hire us to advise you as you do the paperwork and deal with the IRS and/or the ODR yourself.
If the amount that you owe isn’t too much, say $10,000 or less, you can always hire us to review your offer paperwork before you submit it or advise you on how to request reconsideration or file an appeal.
This is done on an individual appointment basis. Each time you want to hire us an advance payment of $295.00 for each one hour of time is required. In that amount of time, we can review your situation and let you know if you might qualify for an offer in compromise. Then after you’ve done the paperwork, you can hire us for another hour period of time to review your documentation and make sure that you are following the requirements and providing the correct forms and supporting documents. Then, if and when your offer is rejected, we can meet for another hour to discuss why and how to request reconsideration or pursue your right to appeal.
Either way, we believe it is important to get help when you want to make an offer in compromise. It may be the only chance you have to get your problems with the IRS and/or the ODR behind you.
If we conclude in our first consultation that you are not going to be able to qualify for an offer in compromise, we can advise you about the other available ways to handle the situation including setting up payments or getting on an uncollectable status, but you need help dealing with the IRS to make sure that you are not missing out on an opportunity to get your tax problems under control once and for all.
Offer in Compromise FAQ's
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Behrends, Carusone, PC, Bankruptcy Attorneys
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