Offer in Compromise

EXTREMELY IMPORTANT NOTES:

(1) There are major changes in the Offer in Compromise program. If your offer in compromise was to be paid in a lump sum, you will have to remit 20% of your offer with the package. If you intend to pay the offer in compromise in monthly installments, you will have to start your payments immediately, and continue the payments while the IRS processes the offer. If the IRS hasn't made a decision within two years, the offer in compromise will automatically be accepted. If the IRS rejects the offer, they will keep the payments that were made in the interim, and go back to standard collection procedures.

(2) If you owe taxes to both the IRS and the State, you must work with a practitioner that will handle an Offer in Compromise for both, at the same time. Not doing so will cost you additional fees and bargaining power.

(3) The advertisements you read about settling your tax debt for pennies on the dollar with an offer in compromise are very misleading. For most offer in compromise ads to work, for pennies on the dollar, you have to be destitute, with no prospects for future income increases, and not much equity in assets. These scams are discussed on the IRS website.

(4) The majority of self-prepared offers in compromise are routinely rejected. Why? The forms are filled out incorrectly. The offer doesn't meet the mathematical minimum dollars amount. The supporting documentation wasn't attached. An outdated form was used. Use a professional to prepare the offer.

You really can't determine what dollar amount to offer on an offer in compromise until a financial analysis is completed. The proper financial statement forms must be filled out and analyzed. This requires familiarity with the tax laws, the IRS' Internal Revenue Manual, which includes standards for living costs in your area, national standards, and allowable expenses. Only after completing this analysis can you calculate the amount of the offer.

There are several items to remember about offers in compromise: The IRS will accept an offer in compromise if there is doubt as to the collectibility of the tax; if there is doubt as to the liability for the tax; or to assist in the fair administration of the tax. In Southern California the IRS is taking about twelve months to consider an offer. That means the statute of limitations will also be extended. (If you don't realize the importance of the statute of limitations, you should be using a professional to resolve your tax problems.)

Lastly, when the IRS finally does get to your offer in compromise, it requires an update on all the material submitted. This means updating your income and expenses for the intervening twelve months! You must become a packrat...save receipts for everything! The IRS will verify your income and expenses, search for unlisted assets, test values and equity of your assets, and finally make a decision.

The process is time consuming. This can be a real hassle if you work a daytime job that doesn't give you much flexibility. That is a strong reason for using a professional. Call me. This is what I do.

One really important item: DO NOT SIGN A CONTRACT ON YOUR FIRST VISIT CONTACT WITH THE PRACTITIONER! You are under stress! Your ability to survive is under attack! You are vulnerable! You want to get rid of the problem! And you are probably dealing with a very experienced "closer." So you may sign a $7,500 (or higher) contract without even knowing the extent of your problem! DO NOT DO IT! Re-read this paragraph. It may save you several thousand dollars.