Clearing Up Confusion About the "Offer in Compromise" Program

"Scar tissue is stronger than regular tissue. Realize the strength, move on." - Henry Rollins

2024 is finally over, and we have a brand-new year ahead of us—and it feels pretty great. The year ahead is full of possibilities for you and your various pursuits, and we are privileged to blog about the financial aspects of these possibilities.

Many people ask us about negotiating an "Offer in Compromise" with the IRS, and today, I want to begin clarifying what those really are.

The Offer in Compromise program is not a universal solution. It's important to understand that it's not for everyone, and we're here to guide you through the eligibility criteria.

Despite all the ads you might hear on the radio and see online. At the same time, more than 16 million people and 3 million businesses owe the IRS, and only 25,000 settled their tax debts using the Offer in Compromise (OIC) before COVID-19.

Only a select few people qualify when the IRS deems, they cannot pay their debt within the normal deadline (usually 10 years).

And there are ways to make that happen.

Here are a few other things you should know about the IRS Offer in Compromise program:

1) "Doubt As to Collectability": The Most Common OIC

There are three different forms of it. The most common, just referenced above --is when taxpayers can't pay their taxes and want to settle for a payment that is less than the amount they owe. It requires various forms of documentation.

The other kinds are "Doubt as to Liability" (when taxpayers don't think they owe the tax in question) or "Effective Tax Administration" (when taxpayers can pay the tax they owe -- but have hardships that prevent them from spending and maintaining their life.

2) It's better to contest the taxes owed.

Contesting is an excellent place to slash a tax bill massively--simply because some tax professionals don't always catch everything. Finding missing deductions, credits, or other filing options that reduce the liability for taxpayers by having a proactive tax firm reviewing past returns.

Looking at past tax returns may reveal that you owe much less than you thought, and you might not even NEED an OIC.

3) Negotiation isn't everything.

It usually comes down to math.

The IRS scrutinizes living expenses to qualify for an OIC and follows a formula to determine who cannot rightfully pay over 10 years. Certain things qualify for these expenses, and certain others don't. What's difficult is determining actual asset values, assets to include in an OIC, average monthly income, and regular necessary and allowable monthly living expenses.

If your offer is accepted, pay on time.

Remember, future tax years matter.

After the IRS accepts an OIC, taxpayers cannot file and owe for the next five years. Keeping your agreement can be a tough hurdle to overcome, and you must have a tax pro in your corner to help ensure your success.

Now, all of this means that an Offer in Compromise may not be the right avenue to pursue in settling a tax debt with the IRS. But fear not—a good tax pro has many options for helping investors.

Remember, taking proactive steps to address your tax debt is essential. Don't be afraid to ask questions and seek guidance. This weekly blog is here to help you navigate the complexities of reducing taxes legally.

BE THE ROAR not the echo!®

Talk again soon.

Warmly, Janet, the Tax Wizard