IRS Offer In Compromise

What is an Offer In Compromise With the IRS?

You can consider an offer in compromise a settlement with the Internal Revenue Service.  The tax attorneys at The McGuire Law Firm have prepared, submitted and negotiated many offer in compromises on behalf of our clients, and our experience is evidenced in our high success rate in getting offers accepted by the IRS.  Through the offer in compromise program, a taxpayer will submit the necessary documents making an offer to pay an amount that is less than the total amount of tax due.  An IRS offer in compromise can be a wonderful means and option to resolve tax liabilities, however it is not always as easy as some may think. 

What Amount do I Need to Offer the IRS?

The offer amount is not so much based upon the total tax owed but rather pursuant to an equation that may appear black and white, but just like many tax matters, there are generally a lot of gray issues and items to consider.  Thus, the offer amount is determined more so by what an individual can pay given their assets and income and each taxpayer’s offer is different as there is no magic percentage the IRS will apply across the board to accept offers.  Taxpayers must also understand that they may not be a candidate for an IRS offer in compromise if they have too much equity in assets and/or make too much money.  A Columbus tax attorney at The McGuire Law Firm can analyze your overall situation to determine if you may be able to resolve your tax debt with an offer in compromise.
 

How is the Offer Amount Calculated?

In determining the offer amount and whether or not an offer can be accepted, IRS reviews the taxpayer’s equity in all assets and what is called a taxpayer’s disposable income.  As stated above, the equity in assets applies to all assets such as equity in a home, car, retirement account, household goods, cryptocurrency, investment accounts or any and all assets the taxpayer owns.  Certain assets are allowed an exemption (a reduction in the fair market value) when determining the value of the asset for purposes of the offer in compromise calculation.  Thus, the amount allocated to the offer may not be what you feel the true equity is.  The IRS determines “disposable income” by using a taxpayer’s total income less allowable expenses.  “Allowable expenses” may mean the national standard for certain expenses such as housing, utilities, food, clothing and transportation expenses.  These national standards for allowable living expenses are determined depending upon where a taxpayer resides and the number of dependents in the taxpayer’s household.  Thus, the IRS more or less establishes or allows an amount that a taxpayer can claim as an expense when arriving at disposable income.  For example, the national standard for housing & utilities for two individuals in Columbus, Ohio may be $1,950.  If the taxpayers actually pay more than the national standard allowed, there will be a discrepancy in what the taxpayer feels their disposable income is versus what  the IRS states their disposable income to be.  

What Forms Are Submitted with an Offer in Compromise? 

Form 656 is the offer in compromise form and states the tax debts or tax periods the taxpayer is attempting to settle and furthermore the amount being offered to settle the debt as well as terms for payment of the offer.  A taxpayer must also complete and submit a financial statement or statements  with the Form 656 depending upon their circumstance.  Form 433A OIC is submitted when an individual is attempting to settle individual tax debts and Form 433B OIC is submitted when a business is attempting to settle business tax debts.  Attachments are required for the financial statements depending upon the taxpayer’s financial circumstances, assets and income.  It is also common for the IRS Offer in Compromise Unit (the offer examiner) to request additional information or documents once they have reviewed the offer.
 
Contact a Columbus tax attorney at The McGuire Law Firm to discuss your tax issues or tax questions and schedule your free consultation.  You may be able to settle your IRS tax debt with an offer in compromise.