Offer in Compromise Success Stories
How do I Know When an Offer in Compromise Is the Best Solution? 5 top reasons.
- You could qualify for a currently not collectible status because you can pay very little or nothing. In an Offer in Compromise you must calculate your disposable income based on the national standard. If you have a low or no disposable income, you may be a candidate for an Offer in Compromise.
- You have minimal equity in assets. In an Offer in Compromise, you must determine the equity in your assets. You would have equity if after discounting the asset to the quick sale value (80%) and subtracting any outstanding loan, you still have equity in your assets. Most of your personal household goods and tools of the trade above a specific amount would be considered out of reach by the IRS. The value of retirement plans at 70%, less taxes to liquidate, would also be included. If you have a low or no equity in assets, you may be a candidate for an Offer in Compromise.
- You have considered how long an Offer in Compromise could take. An Offer in Compromise could take anywhere from 33 months to 48 months to complete in full before the debt is considered paid in full. If you have done the calculation of the possible time and can weather this storm, you may be a candidate for an Offer in Compromise.
- You have considered the remaining Statute of Limitations the IRS has left to collect the tax. The IRS has ten years to collect a tax liability. Submitting an Offer in Compromise extends the collection statute. If making payments over the remaining Statute of Limitation would cause you to pay less towards your overall tax debt, the Offer in Compromise may not be the best solution. If this is not the case, you may be a candidate for an Offer in Compromise.
- You have considered other options. Bankruptcy can eliminate certain tax debts if they qualify for discharge. It is extremely important to understand which debts qualify for discharge. If you have spoken to a Bankruptcy Attorney and the have determined the amount of dischargeable tax debt or that Bankruptcy is not the best option, you may be a candidate for an Offer in Compromise.
When an OIC May Not Be Advisable
1. Filed Bankruptcy
In some cases, filing bankruptcy is a better option over filing an Offer in Compromise. If you have old debt it may be more beneficial as your debt is totally wiped out and no further payments would be necessary, except for your Attorney. If you have already filed for bankruptcy the IRS cannot accept an Offer, period.
2. The Statute of Limitations on your debt is about to expire
The Statute of Limitations is also called Collection Statute End Dates. These are dates are set when your tax return is filed, or when tax was assessed, and runs out 10 years later. This means, the IRS has 10 years to collect the tax. If they don’t collect in that time frame, the debt is erased.
What does this mean? Well, if you filed a tax return on April 15, 2010 and had a balance due of $100,000. If the statutes were not tolled, such as filing a previous OIC, or filing bankruptcy, or appeals or litigations; this balance will run out on April 15, 2020.
Let’s say in 2018 you decided to file an Offer in Compromise as that $100,000 balance has now accrued eight years of penalties and interest. You were panicked and just wanted all this to be over and resolve your debt. If you were with our firm, we would advise you not to go forward with an Offer.
Why? An Installment Agreement would be a better option. For one, an Installment Agreement would only toll (extend) the State for 30-60 days. Whereas an Offer would toll the statute for at least one year, probably more. If the IRS would agree to an Installment Agreement for $500 per month, you would only end up paying 24 months totaling $12,000. Additionally, what if the Offer was rejected? You would be back at square one and with an additional one plus year on your statutes.
3. Already file an Offer in Compromise that was rejected
If you have already filed an Offer that was rejected, it’s difficult to change that outcome on another filed Offer. The only reason the outcome would be any different is if you filed years later and your financial circumstances had drastically changed. However, at that point, see #2 as your statutes are closer to expiring and an Offer may not be the best solution.
4. Have trouble maintaining compliance
Filing a successful Offer, or even being eligible, requires compliance. This includes filing returns timely, estimated tax payments, federal tax deposits, etc.
To file an Offer, you must ensure you have filed all required tax returns. If you file an Offer and a return is left unfiled, the IRS will immediately return your Offer. If your Offer is already on file and you fail to file a return, or file a return with a balance due and it’s not paid in full by April 15, the IRS will reject your Offer and will be up to you to submit an entirely new and different Offer. Along with submitting new application fee and 20% down payment.
To file an Offer, you must ensure you are up to date on all estimated tax payments. We typically suggest our clients to file monthly versus quarterly as it’s easier to come up with the smaller amount each month versus a large amount every three months. In addition, it’s easier to remember. If you file an Offer and are not up to date, the IRS will either request you get caught up within 14 days or return your Offer.
If you are filing an In-Business Offer, you must ensure you are up to date on all federal tax deposits. Again, if you are not the IRS will return your Offer.
If your Offer is accepted, you must remain in compliance for the next five years. Your case will be consistently watched by a Tax Examiner to ensure you are in compliance. If you fail to do so, your Offer will be rejected and all those balances due along with accrued penalties and interest will call come back to haunt you. From there, you are out of luck and most likely will not get another Offer approved.
5. Equity in Assets
If you have assets with equity, you may not be eligible to file an Offer in Compromise. Reason being, it’s not how much you owe the IRS but what is your Reasonable Collection Potential. Meaning, how much could the IRS expect to collect. So, if you have a large amount of equity in your assets, your collection potential is good.
For example, you own a home worth $300,000, but have owned the home for almost 20 years and purchased the home for $175,000. Right out of the gate you have $125,000 in equity leaving out the 20 years of payments. The IRS takes the Fair Market Value of $300,000 x 80% as if it were sold at auction: therefore, selling the home for $240,000. No, they will not sell your home, but they will ask you to apply for a home equity loan as you now have at least $65,000 in equity.
Offer in Compromise Success Stories
When taking on the IRS, it helps to see some success stories on how the IRS does want to work with taxpayers to resolve their debt. Here are some of our examples of how we assisted taxpayers in resolving their debt through an Offer in Compromise:
- Balance due of $161,744, OIC accepted amount $3,959
- Balance due of $318,115, OIC accepted amount $14,307
- Balance due of $20,310, OIC accepted amount $920
- Balance due of $186,400, OIC accepted amount $867
- Balance due of $820,218, OIC accepted amount $81,463
- Balance due of $151,435, OIC accepted amount $15,449
These numbers represent just a few of those who have had OIC’s accepted by the IRS. It is also important to note they did seek the help of a professional to assist in the process. Our firm has great success when filing Offers as we are Certified Tax Resolution Specialists.