The IRS offer in compromise is a program for taxpayers to settle back tax debt for less than the amount owed. This may sound crazy, even scammy, that the IRS will actually settle for less than the amount you owe; however, this really is a legitimate option for certain, qualified taxpayers. Below are 5 things to consider before actually filing for the IRS offer in compromise:
- A tax settlement is based on the IRS’s CSED or collection statute expiration date. If you can’t pay your tax debt before the statute of limitations to collect, the IRS will settle with you. The IRS generally has 10 years to collect your tax debt after it has been assessed.
- You will need all necessary tax returns filed before filing for an IRS offer in compromise. The statute of limitations to collect on tax debt starts once you file the tax return. If you never filed the tax return, the statute of limitations to collect on the tax debt never started, and therefore IRS has forever to collect. If there is no statute of limitations to collect on the tax debt, the IRS will never settle since they have no time limit to collect.
- You will need to be current with your tax payments. The IRS offer in compromise is to settle your back taxes, not your current taxes. You have to demonstrate that you will no longer continue this bleeding of owing more tax every year, or the IRS will not settle your back taxes.
- Asset Valuation Test. If you own more in assets than you owe in back taxes, the IRS will not settle with you. Assets include but not limits to: house, cars, bank accounts, brokerage accounts, retirement accounts, etc. The offer in compromise does allow some exemptions against the valuation of these assets.
- It can take anywhere from 8 months – 2 years to process an IRS offer in compromise. The IRS offer in compromise takes time and you need to know that going into the process. Tax settlements do not happen quickly, and during this time you will need to make sure that you are paying the correct tax moving forward and filing timely tax returns.
The IRS offer in compromise is probably one of the best solutions for a taxpayer that owes back tax, however if you don’t qualify this is not something that should be filed. There are a lot of factors not mentioned here that go into the qualifications for a tax settlement. The IRS enrolled agents of EA Tax Resolutions would be more than happy to go over your personal situation to see if you qualify.