For people who are facing significant tax debts and arrearages, one of the challenges involves determining whether to make an offer in compromise. An offer in compromise, generally, is an offer to the government to pay less than the total of what you owe in order to obtain forgiveness for the debt.
According to the IRS, they entertain offers of compromise if they are worth at least as much as what they could expect to obtain within a reasonable time. Basically, if the IRS know you can’t pay the full amount and wouldn’t be able to within in a reasonable amount of time, the IRS will take what it can get.
Determining the right course of action
Determining whether an offer in compromise is the right choice for you involves a similar analysis a the one the IRS would utilize to determine whether to accept an offer. If your financial situation is such that you couldn’t possibly pay the full amount, an offer in compromise might be the right choice for you. Making an offer you can afford could remove those mounting debts from your ledger for less than what the total debt is worth.
For most people in that situation, resolving these arrearages and debts for less than their total worth presents a tremendous benefit financially and personally.
Determining eligibility and making an offer
If you do determine that the offer in compromise is the right approach for your situation, the next step is to make an offer.
However, this option is only viable for those who qualify. To qualify, you must have filed your returns and not required estimated payments. Also, being in an open bankruptcy proceeding would render you ineligible for an offer in compromise.
Assuming you are eligible, making the actual offer requires some thought and planning. You should consult with an experienced tax lawyer to determine how to proceed. You need to make a smart decision about how much your offer should be worth. If you make an offer too high, the IRS will certainly accept it, and you need to make sure you can actually afford whatever offer you make. On the other hand, you need to make sure you don’t make an offer so low that it gets rejected.
In addition to the determination of what kind of offer you make, you will need to handle all the administrative, clerical aspects of the actual filing. Offers in compromise will be rejected if these details are not handled properly.
Finally, you will need to decide whether you want to make a lump-sum payment or set up an ongoing payment plan.
An offer in compromise can be a tremendous benefit for many of those who qualify, and it might be the right decision for your situation. But you need to proceed strategically and strategically.