Tax debts can be a heavy burden, and for some, they can become completely unmanageable. For those who are struggling to stay afloat because of significant tax debt, an Offer in Compromise may be the answer.
The Internal Revenue Service (IRS), Franchise Tax Board (FTB), Employment Development Department (EDD), and Board of Equalization (BOE) are permitted to settle tax obligations with taxpayers for less than they owe under federal and state law. These tax resolution tools are referred to as “Offers in Compromise.”
The negotiation process for an Offer in Compromise can be complicated, so it is a good idea to have an attorney help with the paperwork. This is particularly true if you are dealing with a large tax debt. The experienced professionals at Packey Law Corporation can help you develop an Offer in Compromise that has a higher chance of being accepted.
What is an Offer in Compromise?
An Offer in Compromise is a offer to settle the tax liability for lesser than what you owe. It is based on your ability to pay and assets. There are a couple of offer options. The first is “Doubt to Collectiblity” which is the most common. The second is “Effective Tax Administration” which indicates that a taxpayer may have the ability to pay, but by doing so would cause an economic hardship to pay in full. You may also qualify for an OIC if there is some question about whether you are liable for the tax debt. These situations are rare, but they may involve questionable business income taxations or potentially improper tax. It is particularly important to retain an attorney under these or similar circumstances.
The Offer in Compromise process is complexed since all tax entities may use a different set of guidelines to determine if an offer is in their best interest. The IRS National Standards are used to determine qualifying expenses to determine the ability to pay. Packey Law Corporation will analyse your situation to determine the best plan of action that best fits your situation.
The government is under no obligation by law to grant you an Offer in Compromise. However, the tax entities IRS, FTB, EDD, and BOE must give your proposal fair or proper consideration.
Accepting an Offer in Compromise
As part of its “Fresh Start” program in 2012, the IRS greatly decreased its requirements regarding who could get an Offer in Compromise. Acceptance is more based on ability to pay when looking at hard numbers compared to subjective measurements. The tax entities will look at your financial data from an objective perspective.
The IRS, FTB, EDD, and BOE will consider the following factors when determining whether to accept an offer in compromise.
- Your assets and the ability to liquidate any assets;
- Your income: All sources of income; and,
- Your expenses including household, student loans, credit cards, personal loans, etc.
If you have significant assets that you do not liquidate to pay your tax debt, your Offer in Compromise may not be accepted or the offer may be increased to the amount of the asset value. However, under the “Effective Tax Administration” or (ETA), if liquidating the assets causes a financial hardship, an Offer in Compromise may be accepted based on ETA. This is common in elderly who own their home but cannot take a second mortgage on the home since they are on a fixed income and cannot make required payments of a second mortgage loan.
The IRS and other tax entities do not accept offers over the phone or online.
Gathering Financial Information
Our office will provide you with documents to complete and return. Once our office receives the information, our office will analyze the information to determine the offer amount, what type of offer to submit, and analyze the information searching for any discrepancies or red flags that may arise before submitting an Offer in Compromise. Our office thoroughly reviews all information as a way to maximize the probability of your offer being accepted.
Getting Help with Your Offer in Compromise
Even though the IRS and other tax entities provide information on how to apply for an Offer in Compromise, you may not fully understand your options and rights. Tax resolution attorneys can explain these concepts to you and may be able to submit a more creative offer that fits your unique financial situation. Call the Packey Law Corporation at 916-564-1600 for more information.