The truth about IRS Offers in Compromise, Part 1
An Offer in Compromise is when the office of the Commissioner of the IRS compromises your Federal tax debt in exchange for an acceptable offer of partial repayment based on your true ability to pay.
Convincing the IRS that you are in a dire financial condition takes time, after all, you might be lying. To find your true ability to pay the IRS is going to subject you to an arduous process of evaluations; not once, but twice. The IRS has 12 months to respond to your application and ask for additional financial information; otherwise they are stuck with your initial paperwork. They will contact you just inside of 12 months to request a new and complete set of documents because the other ones are a year old and unsuitable for a current evaluation. You will comply and you’ll be nice about it because they have something you want. Statutorily the IRS has to accept or reject your offer within 2 years or your initial Offer stands. You can expect the formal determination in just under 2 years.
If your Offer is rejected, this is where the skills of an experienced representative is well worth the money because a counter-offer needs to be made while direct contact with the IRS’ Qualifying Agents is still possible.
You have to be in current compliance with all of the tax laws before you can file an Offer. You have to remain currently compliant with the tax laws during the entire Offer process, and for the 5 years following the acceptance of your Offer, otherwise the IRS will put your bill back to where it was before you started. Consider that you owed the Government $50,000, you fell on hard times, and the IRS eventually accepts your offer of $5,000. Two years after your Offer was accepted you fail to pay your full tax amount by April 15. You’ll get a letter giving you one last chance, and if you don’t pay those current taxes the $45,000 that was compromised will be put back into your account.
Unless you go it alone the cost of filing an Offer is not cheap. Have you ever noticed those ads on the radio or television asking, “If you owe the IRS $10,000 or more call us?” Ever wondered why the magical number was $10,000? The average retainer for an Offer in Compromise is $4,000. Add to that the fees for filing two missing tax returns, and amending three others (necessary to bring you into current compliance), and the cost of representation just shot up to about $6,000. If you didn’t owe the IRS at least $10,000 it might not be worth the effort. On the up side, you can pay your accountant at the start of the process and that reduction to your bank account asset will not be considered to have been intentionally dissipated.
Offers in Compromise are not easy, they take time and they can be expensive. ‘