Lilly: Sep 16, 2008

Offer In Compromise

0 comments Published Tuesday, September 16, 2008 by caitlyn6232.

There are many enjoyable things in life...Dealing with the IRS is not one of them. Enough said. By now, you have probably heard of the mythical Offer In Compromise program established by the IRS. But what exactly is an Offer In Compromise? More importantly, how in the world do you qualify for this tax relief program if you owe back taxes? For the sake of argument, let us assume that you have received a notice from the IRS stating that you owe $40,000 in back taxes. We'll also assume that you knew you owed the IRS but had no idea it was that much. Your first reaction is to ignore the matter and hope it disappears. So you turn on the tv and watch sports highlights while partaking in your favorite meal, which is of course cold pizza. About a month later, you receive another notice, this time it says they are going to levy your assets in thirty more days if you don't pay your debt. By levy, we mean to "take" your money, bank accounts, etc. This time, you nearly have a heart attack and finally confess to your spouse, "Honey, I think we're in serious trouble!"

After drying the cold soda off your shirt that your spouse threw at you, you both sit down and think really hard about how to best resolve this situation. You first check your bank accounts only to discover your worst fears, which is that you only have $893 available. However, you also have a couple credit cards that have $2,000 available. But still, you're no where near able to pay the full amount. So you do some investigating and discover an IRS program called Offer In Compromise. You read how this program will allow you to settle your back taxes for a much smaller amount than what you owed. You and your spouse are completely thrilled beyond belief! Only one problem, how do you go about getting this wonderful instrument from the IRS Gods?

You decide to call the phone number on the IRS notice that you received, which is from their collections department, assuming they'll be glad to hear from you. So you call, and sure enough, they are glad to hear from you so that they can demand their $40,000 you owe them. You explain that you would like an Offer In Compromise. At first, you assume the dead silence is a problem with your phone. "Did I hang up them?" But then you suddenly hear a chuckle. It is at that moment that you realize calling the collections department may not have been a good idea after all. After the IRS Collections Agent finishes laughing at you, he tells you that you don't qualify for the OIC program and that your best bet is to make monthly payments of $2,000 per month until you catch up on your debt. At this moment you freeze, completely unsure of what to do. Do you agree to these terms that you know you can't afford...Do you tell the Agent you cannot afford this...Or do you book that ticket to Bermuda that you've always dreamed about and try to evade the IRS? Thankfully, the rational part of your mind kicks in and you realize that if you avoid paying your taxes, you will go to prison. So instead, you tell the Collections Agent you'll have to think about it and hang up abruptly.

You wonder why the IRS Collections Agent shrugged off your suggestion about an Offer In Compromise. It's then that it hits you...The program exists, but they would rather collect on all the back taxes you owe instead of settling it, after all they are a Collections Agent, so that's their job. So you decide to research the program yourself. You determine you'll need to fill out form 656. Only problem is, it's long...Real long and complicated. You also find out during your research that before the IRS will negotiate with you, you must be current on your tax filings. Unfortunately, you have not filed your tax return for the years 2005 and 2006, and you don't know how to prepare your own taxes since you had both W2's and 1099's for those years, as well as itemized deductions. Moreover, you discover that there is a way to stop the collections, but it involves filing an appeal to the Collections Department, which means another form, knowing how to fill it out, and where to send it. Along the way, you also find out that there is more than a good chance that much of the $40,000 they say you owe, is made up of penalties and interest. In that case, you have a shot at receiving a Penalty Abatement. This is a program that allows you to get many if not most of penalties wiped away, however you'll need to file another specific form for that as well. Then again, how will you know about your penalties? Well, you research some more and find out that you can pull your Master Tax Record from the IRS which will show you everything, but that means another form. What makes this really difficult on you is the fact that all these forms may have to be sent out to different locations within certain time frames and of course there may be IRS filing fees. You've also read that one single mistake on these forms, especially when making your Offer In Compromise, could cause the entire negotiation process to come to a screeching halt since the IRS will immediately throw your offer out. Meanwhile, the clock is ticking closer to the thirty day window the notice had warned you about. You wonder, "Are they going to garnish my wages?" "Or are they going to levy my bank account?"

Nigel Galt is a partner in Atlas Tax Solutions, the premiere tax resolution firm. With expert CPA's, Attorneys and Enrolled Agents on staff, we assist with wide ranging needs, from tax preparation, to submitting offers in compromise. If you owe more than $10,000 in back taxes, or are currently having your wages garnished or have received a lien, then apply online at http://www.backtaxdefense.com for immediate assistance.

Offer In Compromise

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