An Offer in Compromise may allow you to resolve your IRS debts for an amount substantially less than what you owe. The focus is not on the amount of the liability, but on how much you can afford to pay. If the proper procedures are followed the IRS will settle on the basis of “doubt as to collectibility.” (Less frequently offers can be based on “doubt as to liability,” or in the interest of “effective tax administration.”) As a side benefit, the IRS is legally prohibited from pursuing collection activity against you while it is considering your Offer in Compromise proposal. In other words, while your offer is in the pipeline the IRS cannot seize assets or garnish your wages.
The Offer in Compromise program is difficult and frustrating. Most people do not have the experience or the knowledge of IRS collection policies and procedures to be able to assemble and effectively negotiate an Offer in Compromise. As a result, the IRS turns back most offers as “unprocessable” before they even get to the merits of the offer proposal. The majority of other offers deemed processable are rejected. For this reason, it is very important to do it right the first time.
PREPARING YOUR OFFER IN COMPROMISE
After filing a Power Of Attorney form with the IRS, we typically secure “transcripts” of your accounts to verify that your tax returns, withholding credits and payments have been properly posted, and to determine whether the statute of limitations on collections is near expiration. We also file a request under the Freedom of Information Act to get the IRS’s files on your case so we can see the basis for the assessments, previously filed financial statements, internal computations of your ability to pay, and anything else that would help us represent you more effectively.
We will also need to have extensive discussions with you (often over the telephone to save time and cost), to understand the details of your financial circumstances. This is essential so that we can properly prepare the necessary IRS Collection Information Statement (Form 433-A) on which the IRS’s evaluation of the Offer in Compromise is based. You will have several opportunities to review the Collection Information Statement and supporting documents and to provide any additional information or materials needed to make the offer package complete and correct before we send it to the IRS.
There is an opportunity for vigorous and creative advocacy in presenting financial information to the IRS. Knowing the rules and the extent of the IRS’s flexibility on these issues is crucial to obtaining the best possible result. We will work with you to present your financial information in the best possible light, and to thus increase the chances of successfully compromising your tax debts.
FILING YOUR OFFER IN COMPROMISE
Once the Offer in Compromise, the related Collection Information Statement, and all supporting documents are assembled and properly organized, the offer package is filed with the appropriate IRS office. In August 2001, the IRS began “centralized processing” of certain offers at the Brookhaven Service Center in New York and at the Memphis Service Center in Tennessee. Other offers, typically involving more complex situations, are processed in the local IRS field offices.
The IRS review process is painfully slow, and often updated financial information must be submitted before the offer package is finally reviewed. The IRS may take up to two years to consider and decide on an Offer in Compromise.
As noted above, the IRS is precluded from taking any collection action while the Offer in Compromise is pending. This can free you from the threat of IRS seizures or levies for a year or more, given the length of time it takes the IRS to process your offers.
During the time the Offer in Compromise package is being assembled and submitted, and throughout the process of review, negotiation and possible appeal, we would handle all correspondence and discussions with the IRS. You would not have to meet with an IRS Revenue Officer at any time, or even respond to any notices or correspondence (except to forward copies to us).
PAYING THE COMPROMISE AMOUNT
Typically, a $150 application fee and 20% of your total offer must be submitted to the IRS at the time of filing an Offer in Compromise. The rest of your offer would be payable within 90 days after the IRS has notified you of acceptance. In the alternative, it is possible to pay the offered amount in monthly installments over two years.