There are a lot of commercials promising easy settlement of tax liabilities for pennies on the dollar. They are usually referring to the offer in compromise (OIC) program. There are conditions that you should be aware of before using an OIC.
How does the IRS evaluate my offer?
The IRS or any other tax authority wants to collect the full amount of what they are owed. In evaluating an offer, the IRS looks at your income, expenses, assets and equity. The IRS looks at your ability to pay within a 5-6 year period. If you have the ability to pay your tax debt in full within that time, your offer will be rejected. The IRS looks at the equity of your property and assets. If you have assets that could be quickly liquidated to pay your debt in full, the IRS will likely reject the application. There are exceptions such as the property is needed business applications. You would not be able to secure a loan for another home, or if you have a physical impairment which would make moving from your residence a hardship.
Considerations about the collections statute of limitations
Typically the statute of limitations for the collection of tax debts is 10 years. If you are close to the end of the collection statute, I would not recommend an offer in compromise if you can "ride out" the time remaining for collections. An OIC extends the statute of limitations and may do more harm than good.
Before the IRS will accept an offer, they require a detailed analysis of your finances. A revenue agent may visit your home or business to insure the value of your property complies with your application. Some people do not want this. If you cannot afford to pay you may be eligible for a hardship exception and request currently con collectible status. You may have to submit financial documents such as utility bills and bank statements but it is nowhere near invasive as an OIC.
You may be able use bankruptcy to eliminate your debt. The debt must be at least three years old. To eliminate a tax debt, the tax return must have been originally due at least three years before you filed for bankruptcy. You must have filed a tax return for the debt you wish to discharge at least two years before filing for bankruptcy. If your tax debt is from payroll taxes or related to civil penalties or fraud, then bankruptcy is unavailable.
You should consider bankruptcy if you have other debts as well.
Can you maintain your filing requirement after the offer is accepted?
Offers are accepted on the condition that the taxpayer is in compliance for at least 5 years following acceptance of the offer. If you have a hard time with filing on time or paying your tax debt on a year to year basis. You should not file and offer. The IRS can revive your tax debt if you violate your requirement to file timely returns.
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