Have you been listening to radio ads that promise to get you out of paying your taxes? They claim that a taxpayer can settle their tax balances that are owed to the IRS with an Offer in Compromise (OIC). Many taxpayers who are unable to pay outstanding amounts are eager to listen to anything that would possibly give them a break. However, the truth is; most of these claims are over-hyped and have little chance of being accepted.
In 2013, the IRS only approved 31,000 applications for OIC. The IRS, on the other hand, allowed 4 million installment agreements in 2013 to enable taxpayer to repay what they owe. Kevin Thompson, CPA, President of Action Tax (WWW.ACTION-TAX.COM) says “my experience with this process is there is much hullaballoo and not much action. Most taxpayers either do not qualify or cannot navigate the very difficult process that the IRS has created. I cannot imagine entering this trek without experienced, knowledgeable counsel.”
The Government Accountability Office (GAO) reported in 2010 that more than 16 million taxpayers owed money to the IRS. “These taxpayers are under great risk of liens and levies and other devices the IRS can use to collect taxes owed.” As discussed above it takes highly experienced professionals to assist these taxpayers in these circumstances. “It’s the main reason we recently acquired Cool Tax Services into the Action Tax family of services. I see 31,000,000 taxpayers that need our assistance. Matthew Cooling, EA, Founder of Cool Tax Services says “I have been involved with and preparing OIC’s for more than five years. Joining the Action Tax family will allow me the opportunity to apply this experience to clients of Action Tax, both existing and prospective.”
In order to be eligible for the OIC qualification, they take into account a computation of your ability to pay before the IRS runs out of time to collect the debt. This is called the collection statute expiration date. You can use this OIC Pre-qualifier toolto see if you qualify.
Cooling says “you will need to be able to prove that you can’t pay the total balance owed before the collection statute expires, using net equity in assets plus any future income. The IRS will then calculate your future income as the amount it can collect on a monthly basis.”
Once your ability to pay is determined, the IRS will determine if you qualify for an OIC or if you have to pay the taxes owed to the IRS.
Qualifying for an OIC does not mean you will obtain one. To obtain one, you must be able to pay the offer amount, which is the computed amount required to be paid to the IRS to settle the debt. The formula used to compute the offer is different than the formula used to determine your qualification.
In order to calculate the offer amount, you must complete your due diligence. You may at first find that the offer amount is too high to consider an OIC as an option. You may also discover that your computed net equity and assets and monthly income were miscalculated, which resulted in an offer amount that is larger than you expected and too much to pay.
A tax professional will be more accurate in computing the OIC’s financial requirements and help you avoid a long and costly investigational process or find you a better alternative.
Although the number of OICs accepted is small, compared with the number of taxpayers applying, more taxpayers are qualifying and obtaining OICs due to the 2011 IRS Fresh Start Initiative, which has made it easier to qualify. In 2014, the IRS received 30% more OIC applications compared with 2010 and the acceptance rate increased to 42% up from 25% in 2010. Matthew says “The Fresh Start Initiative is the first real effort by the IRS to assist taxpayers in need. Although not salvation for the needy taxpayers, it is a step in the right direction.”
If you definitely have a financial hardship, you may want to consider qualifying for an OIC. However, the process is complicated and it is recommended that you consult your tax professional to make sure you qualify and to expedite the process.
Action Tax is here to help. Contact us at:
Kevin Thompson, CPA email@example.com or call him @ (310) 450-4625 x102.
Matthew Cooling, EA firstname.lastname@example.org or call him @ (310) 450-4625 x109.