If you owe money to the IRS, you might feel as though you’re trapped. What if your tax bill is so high that you’re facing a choice between paying it or covering your basic living expenses?
It’s a worrying situation, but taxpayers do have options and rights when they face these circumstances. That is why you should obtain legal counsel from a Virginia tax lawyer who can assess your case and help you find a solution that will meet your needs.
Poole Brooke Plumlee PC has represented hundreds of clients in tax-related cases, so we understand that there are manageable ways to deal with tax debt and IRS issues. One of them is an Offer in Compromise.
Offer in Compromise Explained
The IRS Offer in Compromise Program (OIC) is an arrangement that lets you settle your federal tax debt for less than what you actually owe. It’s a rare opportunity to overcome a crushing financial burden, which is why it can be so difficult to get your OIC approved without help from a Virginia Offer in Compromise attorney.
In general, the IRS will only accept an Offer in Compromise on one of the following two grounds.
Doubt as to Collectibility
Most Offers in Compromise are made under this category. For your OIC to be accepted, the amount you offer must be equal to or more than your reasonable collection potential, which is the amount the IRS could reasonably expect to collect from you before the collection statute of limitations expires. In other words, the IRS considers your ability to pay before making a decision, so the IRS will review your assets, monthly income, and living expenses, along with your future income potential.
Effective Tax Administration
There are two situations where you may propose an OIC due to effective tax administration (ETA):
- The tax collection would result in economic hardship for you
- Exceptional circumstances exist that affect public policy or equity
Health issues are one of the top reasons for ETA Offers in Compromise. Other special circumstances that may qualify include misinformation from the IRS or acts of third parties. These types of offers can only be made when you have the assets and income to fully pay your outstanding tax debts but doing so will impose a hardship on the taxpayer (for instance, keeping you from meeting your basic living expenses), or the collection of the tax will erode the public’s faith in the tax policy.
If the IRS accepts your OIC, it will cease all collection activity as long as you maintain the monthly payments.
Qualifying for an OIC
The IRS has specific standards you need to meet before it considers your OIC. They include:
- You must have filed all of your tax returns prior to presenting an Offer in Compromise. If you are missing any years, the IRS may return your offer without reviewing it. If your offer is returned prior to it being reviewed, you will not have any appeal rights and will need to start the process over again.
- You must be current on all of your tax payments. If you’re a W-2 employee, this means sufficient withholding from your paychecks. If you’re self-employed, you must be making your estimated tax payments.
Tax Debt That Can Be Settled Through an OIC
An IRS offer in compromise can be used to settle taxes, penalties, and interest. This includes:
- Income taxes
- Payroll taxes
- Trust Fund Recovery Penalty.
How Can I Pay an Offer in Compromise?
Once your OIC has been accepted, you have more than one payment option. Specifically, you can pay your entire tax liability as a lump sum or through a periodic payment agreement.
When you file an application for a lump sum payment offer, unless you qualify for an exception, you must submit an initial payment consisting of 20% of the offer amount. If your offer is accepted, you must pay the remaining amount within five months of acceptance. With a periodic payment plan, you have to submit an initial payment along with your application and then pay down the balance in monthly installments while the IRS considers your proposal. Your monthly payments will continue under the terms of the OIC if it is accepted.
Are Most Offers in Compromise Accepted?
No. Less than half of the OICs submitted to the IRS every year are actually accepted. In 2019, the government rejected approximately 67% of all applications it received. For the best chance of success, you should consult a Virginia Offer in Compromise attorney about using this strategy.
Poole Brooke Plumlee PC can help you determine if you are a good candidate for an Offer in Compromise by reviewing your financial situation. If you are, we will prepare an offer that stands a good chance of being accepted. As part of your legal representation, our firm will negotiate with the IRS on your behalf and aggressively try to reach an agreement that meets your financial needs. Along with obtaining an Offer in Compromise, we can also work on an installment payment plan that satisfies the IRS as well as your financial situation.
What if I Owe State Taxes?
Virginia, and several other states, also consider Offers in Compromise to resolve state tax debts. However, you must file a separate offer in compromise to resolve your state tax debts. It may be in your best interest to file a state offer in compromise even if you are not filing an IRS offer in compromise, or do not qualify for an IRS offer in compromise. We can assist you if you have questions about state debt. Contact a Virginia tax lawyer at our firm for more information.
What if My OIC is Rejected?
If you receive a rejection letter, you have the right to appeal if you are not satisfied with the IRS’s decision. In some cases, the IRS rejects an application for lack of information. Other common reasons for rejection include:
- Failure to include the entire application fee and/or 20% deposit
- A bankruptcy filing
- Making a false statement on the application
- Missing details on your financial statement
- Additional liabilities being accrued while the offer is being considered
You have 30 days from the date on the rejection letter to appeal. If you have received a rejection letter, contact us and we can help determine if an appeal is appropriate. If not, we can help you explore other tax relief options, such as installment agreements.
Talk to a Virginia Offer in Compromise Attorney Today
To find out if you qualify for an IRS Offer in Compromise, talk to an experienced tax attorney at Poole Brooke Plumlee, PC. We have many years of experience resolving tax controversies for clients and will handle all aspects of the OIC submission and negotiation on your behalf. Our team will work to achieve the best possible result for you, so you can face the future without a huge tax liability over your head. To schedule a consultation, please contact us.