When you are not able to pay the entire tax amount due because it would land you in financially dire straits or you just do not have the funds to cover this bill, the Offer in Compromise is a way to salvage the situation. The Offer is an attempt at a resolution by the IRS whereby you do not have to pay the entire tax sum coupled with interest on unpaid taxes and penalties, if any. The Offer in Compromise is indeed a boon to many cash-strapped individual and business taxpayers who naturally make a beeline to file for the Offer. But the IRS is known to be extremely stringent when it comes to granting offers; in fact, it rejects more than 80% of all offers filed.
A Winning Application
You need to put your best foot forward to improve your chances of succeeding in convincing the IRS of the merit of your case. And for this, you will need to choose the most compelling strategy for presenting your Offer in Compromise.
Do Not Lie
A clincher of a strategy is one where you represent your financial condition such that it is evident that you are either unable to pay your taxes in full or doing so will place a severe burden on your financial resources. This of course, does not mean that you misrepresent the facts about your assets and liabilities but rather entails reorganizing the details of your financial condition to present them such that they corroborate and thus favor your situation.
Some Key Facets
An apt strategy would be to cite real or relevant instances in your life and present details about these such that your financial difficulties come through clearly. Some such instances to prepare your Offer strategy could be under the following categories:
- Protecting Your Home: This is a critical aspect of asset planning and when presented with appropriate details, is an important consideration in the eyes of the IRS.
- Providing for Children’s College Education: If you or your tax professional can chalk out a detailed expense plan which would highlight the fact that paying the full amount of taxes due will impair your ability to sponsor your children’s education, your chances of having your Offer granted may improve. Of course, this expense plan needs to contain the details of your present financial condition and the estimated cost of the college education.
- Bearing Continual Medical Expenses: If you, unfortunately, have to bear medical expenses, either for self or a loved one who is financially dependent on you for a long time in the future, you can prepare your Offer citing these details that will also include the cost estimates of an upcoming medical costs, such as life-saving surgery, if any. This is one consideration that might just strengthen your case.
Two Payment Options
Coming up with the most favorable strategy for presenting your Offer in Compromise is not the only tricky part of filing this Offer. You need to also determine the payment option that best suits your needs. You can choose between the two of these:
- The first payment option requires that you pay 20% of the entire offer amount when you submit your offer and then pay the rest of the money in no more than five installments.
- As per the norms of the second payment option, you must make the first payment along with the offer and then pay the remaining amount as per the rules of your proposed offer. Remember that in this payment option, you will have to keep making the payments even as the IRS is assessing your claim. Or else, your submission might be rejected.
Try to Remain Flexible
While you debate which is the best payment option for you, keep in mind that the amount of your offering that the IRS will accept depends on the time period of the payment option. If you pay for the offer within five months of IRS accepting the offer, this amount will be less.
Devising a strategy that best presents your Offer in Compromise and then selecting the payment terms are some of the most complex and critical tasks of filling this legitimate request. Ensure that you ponder over the details and seek the help of a competent and experienced tax professional before you submit your application.