02 Dec What Does Filing an Offer to the IRS Mean?
Sometimes the Internal Revenue Service (IRS) is willing to work with people who have fallen behind on their taxes but want to wipe their tax slate clean. However, they first need to prove they qualify for something known as ‘the offer in compromise,’ or simply offer. If a taxpayer qualifies for the OIC, the IRS will accept less than the amount they owe on a tax bill and call it even.
Though there are no legal grounds for having a valid tax bill reduced by the IRS (it is entirely a matter of government discretion), the agency must give fair consideration to correctly submitted OICs. The good news is, in recent years, the IRS has accepted. Over 40% of the submitted OIC’s, which is a pretty high percentage compared to prior years.
How to Know If You Qualify?
To show the IRS that you qualify for OIC consideration, a taxpayer has to have one of the following situations:
– there is a doubt whether the IRS can collect their tax bill, now or later. This is called ‘doubt as to collectibility.’
– due to exceptional circumstances, payment of their tax bill would be deemed ‘unfair’ or ‘inequitable,’ or it would cause an ‘economic hardship.’
There is a third, rarely used option called ‘doubt as to liability,’ and it’s based on a claim that there is some doubt whether the evaluated tax liability is correct. Those who want to pursue it must file Form 656-L.
Submitting an offer of compromise to the IRS is a formal process that starts with an IRS Form 656 and a $186 application fee, which needs to be attached to it. If the taxpayer’s monthly income is below the poverty guidelines, they can be exempt from the fee.
The taxpayer has to provide detailed financial information to the IRS using one of the following forms:
– Form 433-A (individuals) – Form 433-B (business).
If the taxpayer is married, the IRS may request that they include their spouse’s data, even if they alone owe the IRS. Taxpayers should make sure they are carefully filling out this form since the IRS scrutinizes the disclosures they make in the form more closely when considering an offer of compromise than when a taxpayer requests to pay their taxes with an installment agreement. The taxpayer’s offer must equal the ‘net realizable value’ of their assets, plus their excess monthly income after subtracting their monthly expenses from their monthly income.
If the offer is not accepted, the IRS must give a written explanation for the decision. The agency usually rejects offers because the offer is too low, or a taxpayer is a ‘notorious’ character. However, a taxpayer can always make their offer sound more acceptable and resubmit it. The taxpayer can also formally appeal a rejected offer or call the person who signed their letter and persuade them to change their minds. The taxpayer has to file IRS Form 13711 within 30 days of when they received the rejection letter to appeal formally.
If you want to know more about this and other subjects pertaining to taxes and tax resolution, feel free to contact Golden Tax Relief!