For Arizona Taxpayers - Is the IRS Offer In Compromise Oversold?
If you have serious tax debt, income, employment or other, you have likely heard of the IRS' Offer in Compromise program.
The most common IRS Offer in compromise program, "doubt as to collectibility" was instituted to help the IRS close taxpayer files that showed little if any promise of future collection potential.
The program does this by setting up a formal application and negotiation process that allows the amount of the settlement to be based NOT on the amount of the debt or some informal give and take, but on the amount the taxpayer could theoretically afford to pay.
The remainder of the debt is forgiven.
Most taxpayers with serious tax debt hear about this and think "wow", I am going to be able to go on with my life after all. They then rush out and pay someone to fill out the paperwork, pay some fees and file it. A few months later, and.... rejection.
The reality is that most offers in compromise fail. They fail mainly because most taxpayers don't qualify well for the formal program. The reasons are numerous.
The most common is that the IRS is empowered to impose a budget on each taxpayer in determining the amount of "excess" income that the taxpayer has available to pay the debt. The budget is not friendly to everyone. It assumes that the taxpayer is living on a budget the government thinks is appropriate.
The IRS is able to take the difference between that budget and the taxpayer's average net income and multiply it by 48, 60 or the remaining period in the statute of limitations period left for collection. They also get to add any taxpayer asset value.
Typically, the amount calculated is such a large portion of the debt, the taxpayer can't afford the terms.
Last year, less than 25% of all offers submitted were successful. Many of those were probably not accepted on the taxpayer's original terms as well.
Despite the offer in compromise program's lack of success, it is touted as a cure all by hundreds of nationwide sales firms on TV, radio and in the mail. Many taxpayers have developed a distorted view as a result regarding their true options.
Having said that, an offer does make sense for some, and everyone with serious tax debt needs an experienced tax controversy attorney to review their situation with an offer in mind.
In order to complete a successful offer in compromise, the attorney should review the taxpayer's current, past and potential income, assets and budget to determine if it would make sense to file.
Often, a trained eye can guide a taxpayer who may not be a good candidate now, become a better candidate in the future.
However, no matter how much planning and preparing a taxpayer does, there may be better options.
I always recommend therefore that each client not only analyze their situation with an eye toward an offer in compromise, but also with an eye toward comparing the benefits an offer may supply, to those of a tax motivated bankruptcy, an installment agreement, non collectible status, statute of limitations defense or an appeal or litigation to challenge the underlying debt.
If you have serious tax debt, please call me, Michael Anderson, a local Arizona tax controversy attorney at 480-507-5985. I will discuss your options over the phone for free.
