The Offer in Compromise is a blessing for the indebted taxpayer. Every year in the United States, there are countless individual and business taxpayers who find themselves in debt. Many are either unable to pay their taxes or, in doing so, will harm their financial situation further. The Offer in Compromise (OIC) is a way to allow these people to pay a partial amount of their taxes due. The OIC however, is not a tax waiver and it is not automatically granted. The taxpayer needs to file for the OIC and follow all the procedures that accompany this filing process. First a couple of things to note:
- There are no guarantees
- Ensure you meet the criteria.
The IRS is rigid when it comes to assessing the financial circumstances of an applicant. In fact, the Internal Review Service rejects more than 80% of OIC applications. This is why it’s important to undersand what to do before you file to increase your chances of success.
Before filing your OIC, ensure that you meet the eligibility criteria. These make it mandatory that you have filed for all federal tax returns and are up-to-date on the estimated tax payments or the income tax withholdings that are due to you, among other requisites. Then check with the Centralized Insolvency Operation to ensure that there are no pending bankruptcy cases against you.
Gather the required documents
An integral task before filing your OIC is to prepare the documents required to be submitted. You must also provide forms 656, 433A, or 433B. These include your paystubs, bank and credit card statements (for the past three months), details about your loans, mortgages, and retirement accounts, and a summary of your personal expenses. Personal expenses include elements like health and child care, housing, and transportation. You will of course, need to consult an experienced tax professional to help you prepare the documents. Your CPA can organize the details about your financial status to present it in a favorable light to the IRS.
Do your best to make sure everything is in order, and then seek experienced counsel. The easier you can make it on the tax professional that will help guide you the rest of the way, the less the tax professional will have to spend and the less money you’ll have to spend.
Enlist the help of a tax expert
Spend time seeking out the best tax pro to guide you through the offer in compromise. There is more about selecting the right person to guide you through the process elsewhere in the guide, so for now we’ll just say, do not take this decision lightly.