The IRS
Offer in Compromise provides the taxpayer an excellent chance to settle all tax
financial obligations with the IRS permanently. it's true that several tax
relief companies like Taxmaster, American Tax Relief and RoniDeutch went out of
their business as the result of their failure to match up their promises and
many new ones show up on the internet frequently, but on the other side, each
year many taxpayers get benefited from OIC program which helps to get rid of
their tax money owed once and for all.
One of
things you must take into consideration though - is the Internal Revenue
Service isn't stupid. They aren’t going to accept your offer blindly just
because you approached them with a tax attorney or just for the sake that you
requested it. Their ultimate goal would be that the offers must be in the best
interest of the IRS. There is where a tax lawyer can play a major role in
persuading the IRS to prove it is within their best interest.
Having said
that, would you believe that there are situations where it is not to best to
file an offer in compromise? It’s true. And here they are…
1. If you have old taxes and you were
thinking about filing bankruptcy
Could you
believe that one could file Chapter Seven bankruptcy to totally wipe out old
individual tax debts? So why bother paying out even a nickel to the IRS if you
can move on without having to pay anything at all. I see advertising from tax
so- called relief firms who state that Bankruptcy is not a good idea. However,
the hidden truth is that these companies can't get a good income once you go
for Chapter 7. My firm doesn't file bankruptcy and we want to assist clients in
getting the very best resolution even should there be no money involved for us.
Yes, this makes us busy enough.
2. Offer in Compromise and the tax
code compliance
Among the
less known facts of an Offer in Compromise, is that in order to be‘permanently’ accepted, the tax payer need to remain in complete compliance
with the tax rule for a period of five years after the offer was accepted.
Failure to do so, by not submitting returns or running up a new liability,
means that the offer is undone. So for our many clients, who have trouble being
in compliance, we advise yet another plan of action to settle tax debts.
3. When you had rejections from
previously filed Offer in Compromise
IRS doesn’t
want to see several Offers in Compromise from a taxpayer. It will only result
in a rejection. Same thing could happen when the amount you offered isn’t
competitive. To get your offer accepted, you must come up with a story based on
reality and also making the most of the few unknown tax rules and exceptions
which combinedly persuades the IRS person to think about your proposal. When
you ignore this, your offer can get rejected or end up paying too much.
The IRS just
has 10 years to recover the tax arrears, after that they no more can claim the
debt legally and they write it off. But there are certain activities that may
stop the ten year time clock from running. One such thing would be the offer in
compromise. This is called as tolling the statute of limitations. Suppose your
tax return was filed for the fiscal year 2001 on-time. Your tax assessment took
place on the following year (15th April, 2002) and had some tax liabilities.
Assuming nothing tolled the statute of limitations, IRS officially won’t able
to pursue collection of the debts right after 16th of April 2012. Yes, it means
you owe nothing now.
But by
filing offers in compromise, the time can stop running. This example gives an
idea - an attorney submitted six Offers in Compromises for the year 2002 taxes.
For each Offer in Compromise filed, the time limit will increase by a year.
That means with this case, Internal Revenue Service can demand the tax owed
right up till 2018. In case the lawyer didn't proceeded to go for offer in
compromise to solve his tax issue, then at this point every problem could well
be gone.
4. Taking advantage on the Statute of Limitations
Now let’s
suppose that the attorney I mentioned above made a timely filing of his 2002
1040 on April 15, 2003. And he never went for any options that can toll the clock from running. As of now, the total tax arrears along with penalties come
around $250,000. Should he go for filing
an offer?
Well, maybe
not. If we calculate, only 7 months the IRS has got to come after him to
recover unsettled dues. Maybe this lawyer would be better off through getting
the IRS to accept a partial payment installment agreement for $1000 a month for
the next 7 months as opposed to an offer in Compromise. Why this option? The
reason is after 16th April 2013, it’s all over. For his $250,000 tax debt, he
repaid only $7000. But, this method has one downside. When there is tax lien
against this taxpayer, it cannot be removed or withdrawn. The tax lien would
appear in as a debt on his credit, essentially a write- off. But an accepted offer
in compromise that pays off the debt will likely be considered as full payment
and this usually will have a positive effect on credit report.
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