When You Can’t Afford to Pay Your Tax Debt: Tax Resolution with an Offer in Compromise

An offer in compromise (OIC) is the IRS’ tax resolution debt settlement program. It’s a program for taxpayers who owe the Internal Revenue Service more money than they can afford to pay.

Sometimes referred to as the IRS’s “fresh start” program, if approved the IRS accepts a lesser amount (sometimes a fraction of what’s owed) to settle your debt. However, it isn't always easy to qualify due to the IRS’ strict criteria.

Just because you think you can’t afford to pay, doesn’t mean you qualify.  The IRS will examine all of your income, assets, expenses, ability to pay, and whether paying the full amount would cause financial hardship.

Information You Need to Submit an Application for an OIC

It's important to remember the IRS will only accept an offer in compromise if it thinks it wouldn't receive any money otherwise.  In order to apply, you must be current with all tax filings and current payments (current year estimated tax payments and payroll deposits).  Additionally, you cannot be in the process of filing bankruptcy.

Besides your name, address, social security number, and the amount of tax debt you would like it to consider for this program, you need to supply details about your income, assets, and expenses. In addition to wages, your personal income can include:

●       Business profit
●       Self-employment income
●       Rental income
●       Child support or alimony
●       Interest on investments

Your assets can include things such as:

●       Stocks and bonds
●       Resale value of your personal vehicles
●       Market value of your home
●       Balance of your retirement savings accounts
●       Balance of bank accounts, including checking, savings, and investments

For the expense section, you should only include items you pay regularly. These may include:

●       Rent or mortgage
●       Child support or alimony
●       State and federal taxes
●       Daycare costs
●       Costs to maintain a vehicle
●       Auto, health, and life insurance
●       Student Loan Payments
●       Medical Expenses

The IRS offers national and local expense standards that it allows for you based on where you live and your family and household size.  If you exceed these expense limits, you will need to prove to the IRS why you are required to do so.  Documentation is key.

Compiling this information and completing the application correctly can be challenging even for tax practitioners who don’t have expertise in dealing with the IRS. Your CPA or tax advisor most likely doesn’t have experience with resolving back tax issues. That’s why we recommend working with a specialized tax resolution professional like us to better understand this option and increase your chances of approval.

You can find more information about the IRS Offer in Compromise on the IRS website here.  If you want help with your back tax problem, contact us today for a consultation a www.jldtax.com or call us at 201-604-2432.