How Can an IRS Offer in Compromise Help Resolve Income Tax Debt?

Morris County Offer in Compromise Attorney Explains Your Options

When you are struggling with unpaid debts, dealing with any creditor is difficult and stressful. However, perhaps the most inflexible and relentless creditor of all is the IRS. While it is true that you can include tax debt in bankruptcy, only income taxes that are more than three years old and meet additional requirements may be eligible for discharge. But, you might have other options if you have tax debt that is too new to be dischargeable. The IRS offers several programs designed to help people get out from under income tax debt, including an offer in compromise (OIC).

An OIC allows you to make a lump sum payment in exchange for the IRS forgiving the rest of your debt. It may seem counterintuitive for the IRS to agree to this kind of plan, but all creditors prefer to be paid something rather than nothing and having to continue the time and expense of collecting.

So, how do you negotiate the offer? First, do not take on the IRS alone. An offer in compromise attorney from Ast & Schmidt, P.C. can help you deal with aggressive or hostile tax collectors. We understand that there are many reasons a person may fall behind on income tax payments. However, we believe that unpaid taxes do not have to ruin the rest of your life. We know the requirements for an offer in compromise plan, and we can help submit your information in a way that improves the chances that your offer is accepted.

What is an IRS Offer in Compromise and How Does It Work?

Tax debt is not like other debt. Only certain income tax debt that meets a number of requirements would be eligible for discharge in Chapter 7 bankruptcy. For tax debt that is ineligible for discharge or to avoid filing for bankruptcy, you must work directly with the IRS to negotiate a payment plan or other debt settlement solution. One option you may pursue is an offer in compromise. An OIC is similar to regular debt settlement because both involve an agreement between you and your creditor in which you repay a portion of what you owe as a lump sum payment. In exchange, your creditor forgives the remaining balance of your debt.

Like all creditors, the IRS wants to get paid. However, the IRS also has access to your previously reported income through your tax returns. This information can give the IRS a better idea about whether or not you will be able to pay your back taxes in full. If it determines that you can pay in full, whether in a lump sum or installment payments, your application for an offer in compromise may be rejected. Even if you are eligible for an OIC, the IRS will calculate the maximum amount that you should be able to pay back. If you offer less than its calculations, your offer may be rejected.

Am I Eligible for an IRS Offer in Compromise?

For you to be eligible for tax debt settlement through an offer in compromise, you must prove to the IRS that you cannot afford to pay what you owe through future income and current assets. The IRS has its own calculations to determine this. These calculations include factors like income, living expenses and any student loan payments. Other eligibility requirements for an OIC include:

  • You must file all tax returns. If you have unfiled tax returns, you must first submit them properly. Although the IRS will file a substitute return for you for any year you fail to file, these returns do not count toward your OIC application.
  • You must pay all taxes for the current year. It can take up to 12 months for the IRS to respond to your OIC. During that time, you must file and pay quarterly business tax and income tax returns. If you do not, the IRS will reject your offer.
  • You cannot file bankruptcy at the same time. If you are in the middle of the bankruptcy process, you are ineligible for an OIC. If an OIC is pending and you file bankruptcy, the OIC will be rejected.
  • You must file and pay all tax returns for five years following the offer. If the IRS accepts your OIC, you must stay current with taxes for five additional years. If you default on this five-year obligation, IRS will default you. The benefit of the settlement is lost and IRS will seek to collect the remaining balance of unpaid taxes, which had been forgiven in the OIC. This includes fees and penalties associated with those taxes.

You also have to provide documentation of finances and proof of your inability to pay. If you meet all requirements, you are eligible for consideration for an IRS offer in compromise. Consider talking to a Union County Offer in Compromise Attorney to help you determine if you are eligible to apply for an OIC.

What Happens If the IRS Rejects My Offer?

The IRS has no legal obligation to accept your offer in compromise. However, if it rejects the offer, the IRS will send you a written notice explaining the reasons why it refused your offer. You have the option to appeal your rejection within 30 days of receiving this notice. In order to appeal, you must list specific reasons why you disagree with the rejection. These reasons must be legitimate and can include:

  • The IRS miscalculated your income or expenses.
  • The IRS did not consider some or all of your special circumstances.
  • An IRS error in determining how much you can afford to pay in the future.

Most often, the IRS will reject an application because the offer was too low. In this case, the IRS may include a counteroffer for a higher amount that it would accept. You can submit an amended offer within 30 days if you can pay this higher amount. However, an offer in compromise attorney may be able to help you negotiate with the IRS after a rejection. The IRS may try to pressure you into higher payments or a different repayment plan altogether. An attorney can help you fight for your rights and your offer in compromise.

Questions about Tax Debt Settlement? Schedule a Consultation with an Offer in Compromise Attorney Today

Tax debt settlement is complicated. The IRS has many resources and legal experts at its disposal. If you are considering an offer in compromise, you deserve to have someone on your side, too. A New Jersey offer in compromise attorney from our law firm can help you stand up to the IRS and submit an offer that has a good chance of acceptance.

Our bankruptcy lawyers focus only on helping people get out of debt, including IRS debt. Let us put our experience to work for you. If you have questions about offers in compromise or want to discuss other tax debt settlement options, contact us today. Fill out an online review form or call our Morristown office today to schedule your free, no obligation consultation.