I'm sure you have all heard the ads on the TV or radio about people that have been thousands of dollars in debt to the IRS and such and such firm came to their rescue and negotiated with the IRS for pennies on the dollar. This can certainly happen but not everyone qualifies and these firms charge thousands of dollars to go through the process for their clients. Sometimes the client would be better off saving those thousands of dollars and paying the money to the IRS as tax payment or finding a local professional, such as Practical Accounting Solutions, that can assist them. Being able to meet with the person that you are working with and giving them documents in person can be a huge benefit as well as the opportunity to ask them questions and see their reactions and responses rather than corresponding through email or over the phone. The standard tool that the IRS (and therefore the huge "tax savings firms", CPAs or Practical Accounting Solutions) uses to settle these tax debts is called an Offer in Compromise and is submitted on Form 656-B with a Form 433-A for Individuals and a Form 433-B for Businesses.
The Offer in Compromise is a great tool for taxpayers to use if they owe a large amount of taxes (income, payroll, sales, meals, etc.) to either the IRS or a state taxing authority such as the Virginia Department of Taxation. In general, the rules and regulations required to submit an offer in compromise are very similar from one agency to the next but it is best to use a professional, such as Practical Accounting Solutions, to ensure you meet all of the requirements and are submitting a valid offer. There is nothing worse than taking the time and effort to submit an offer only for it to be processed, which can take 4-6 months if not longer, and have it immediately denied because all of the appropriate information was not included to substantiate the offer.
The main focus for a taxpayer to submit an Offer in Compromise is to show the IRS or state taxing authority that you would like to pay all of the taxes (and any penalties and interest assessed) but that you don't have the means to pay them (doubt as to collectibility), don't believe the taxes are your responsibility (doubt as to liability) or that you have exceptional circumstances that prevent you from paying the full amount owed in a timely fashion.
The main focus for the IRS is to collect as much of the owed debt as possible but are willing to settle for the amount of the compromise than have to spend hours and hours of administrative time submitting additional notices to the taxpayer and eventually liens and levies through the court systems to possibly not collect anything within the collections statute of limitations.
The IRS has a free pre-qualified tool that you can use to see if you'll be able to submit an offer or if it will be denied. The tool can be found at the following link. There are a lot of pieces that need to be calculated prior to using the tool but by entering rough estimates you can find out if it will be worth the time and effort to proceed or if you need to contact a professional to walk you through the process.
When submitting the offer in compromise the IRS is going to look at two main factors: your assets and your monthly income vs. monthly expenses. When looking at your assets the IRS realizes that not all assets are liquid and they discount the value of these assets to account for this (i.e. primary residence, automobile, personal property). If after all of these deductions and discounts your assets are worth more than how much you owe the IRS will not accept your offer in compromise. The same goes for your monthly expenses versus your monthly income. If the difference of these amounts multiplied by 12 or 24 (depending on what type of offer you are submitting) is greater than your taxes owed the IRS will not accept your offer in compromise. On the monthly expense side the IRS has maximums for certain portions based upon the number of people living in your household. If your actual expenses are greater than those caps the IRS will reduce them and recalculate your offer to see if it is still viable.
Once you have submitted your Offer in Compromise it is time to sit back and wait and keep your fingers crossed. The IRS is going to thoroughly vet the Offer in Compromise request to ensure that it meets the stringent standards set forth as well as to ensure that all portions have been filled out based on the documentation provided. It is within their purview, depending on how long the review process is taking to request updated documents to ensure that assets and/or income levels have not changed or been hidden in the initial filing. At the end of the day you as the taxpayer are signing off on the offer, under penalty of perjury, that the information included and the offer and true, correct and complete to the best of your knowledge. This is the same language that is used on your income tax returns each year.
If you owe taxes to the IRS and would like to know if you qualify to submit an Offer in Compromise please call us at 540-642-4138 or email Practical Accounting Solutions today to set up a free consultation.
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