There are plenty of commercials on TV claiming it’s easy to get tax debt forgiven by the IRS.
But, you know what they say – if it sounds too good to be true, it probably is.
Be careful. There are excellent tax attorneys who may be able to work a deal with the tax man. On the other hand, some companies prey on consumers by offering false hope.
If you have a tax lien, or if your debt to the IRS has become a matter of public record in some other way, you may suddenly find yourself the target of an avalanche of direct mail and even phone calls from national companies.
They often make promises of IRS forgiveness, but do little more than take your money, and effectively disappear.
This doesn’t mean it’s impossible to get tax debt forgiven, it’s just harder than many on TV would have you believe.
If you meet the IRS’s criteria, a good tax lawyer may be able to get you a deal where you pay only part of what you owe the IRS. The process is called Offer in Compromise. And if you qualify, you may have a substantial part of your tax burden lifted from your shoulders — so you can breathe again.
3 Reasons the IRS May Accept an Offer in Compromise
There are three reasons the IRS may approve an Offer in Compromise.
- Doubt of Collectability: You have convinced the IRS that you don’t have the assets or income to pay the debt owed, and they would rather get something than nothing and move on.
- Doubt as to Liability: In some cases, there is a doubt whether you really owe the debt. If that doubt is strong enough, you may be able to settle. If you have already gone to court with the IRS over the issue and lost, however, this is not a possibility.
- Effective Tax Administration: The IRS will consider exceptional circumstances. If you can demonstrate it would cause you extreme hardship to pay the full amount, the IRS may forgive a lot of your debt.
Offers in Compromise Success Rate
Preparing an Offer in Compromise so it is accepted by the IRS requires complex analysis of the taxpayer’s individual situation, calculations, logical explanations, submission of extensive financial information, and completion of detailed forms.
The Offer in Compromise is reviewed at many levels within the IRS before it is approved or declined.
Offers in Compromise are accepted about 40% of the time.
One of the issues that requires a tax attorney to have a great deal of experience is determining how much to offer to the IRS as a settlement.
You don’t want to offer more than you must, but if you offer too little, the IRS will not approve your Offer in Compromise. It takes an experienced tax lawyer to determine what is the lowest acceptable offer and whether you even qualify.
More Things You Should Know about Offer in Compromise
If the IRS approves your Offer in Compromise, they won’t want to dilly-dally. You must pay the amount over a short period of time, if not immediately.
When you submit your Offer in Compromise, you must accompany your submission with 20% of the amount you owe the IRS, along with the $186 application fee. You won’t see it again no matter the outcome. Penalties and interest also continue to mount while you are trying to get your Offer in Compromise approved. It can take up to a couple of years.
The amount the IRS will accept varies dramatically from case to case. Your tax attorney can advise you about your situation. Some people do only pay a fraction of what they owe the IRS. But that is not always true.
If you are not happy with the decision of the IRS, you or your attorney may appeal within 30 days.
If you are in bankruptcy, you cannot submit an Offer in Compromise.
Tax debts are not dischargeable in bankruptcy; however, if you have other debts such as credit card bills that may have led you to putting off your tax bill, bankruptcy may be able to help. For more on whether or not an Offer in Compromise can even help you avoid bankruptcy, check out this post.
Is an Offer in Compromise for you?
You can find the IRS’s pre-qualifier for Offer in Compromise on its website, but the only way to know if Offer in Compromise is your best option or if you should follow another path is to consult with a competent tax attorney.
Be aware that many companies who advertise on TV are less than reputable, you will probably only talk with salespeople and your case will likely never be seen by an attorney. In fact, some of these companies do nothing at all.
Instead, look for a local, experienced tax attorney with an office you can visit and sit down to discuss your circumstances.
If an Offer in Compromise is not for you, your attorney will have help you go over options to consider.
Walter Metzen is a Board Certified Specialist in Consumer Bankruptcy with over 28 years of experience. He’s represented more than 20,000 bankruptcy clients in and around Detroit where his firm is located. View his profile here.