Sorry to break it to you.
You know those commercials you’ve seen that promise you’ll only have to pay “8 to 10% of your tax debt” or “pennies on the dollar” if you make an offer in compromise?
Those commercials are wrong. Or at the very least, misleading.
Lately, we’ve had a number of clients asking us to explain how offers in compromise really work. These commercials make it sound like the bank just waves a magic wand to automatically remove most of your tax debt. Unfortunately, this is not the case.
It’s a long process, and it’s definitely not magic.
Here are three common misconceptions about offers in compromise, plus the cold, hard truth. Remember, we didn’t make up these rules. Don’t shoot the messenger.
Truth #1: You have to satisfy a long list of criteria before the IRS will even consider you for an Offer in Compromise.
In order to get approved for an OIC, you have to meet a long list of pre-qualifiers, which you can find here. For one thing, you can’t be in an open bankruptcy proceeding. For another, you have to be up to date with filing all your back taxes. You can’t have years and years of unfiled taxes and just waltz in and make an OIC. You have to handle all that paperwork FIRST.
That’s just the beginning. The list of qualifiers goes on for pages. (Ask us for help. We can help you get in shape so you’re in a position to make an OIC, but it will take some work.)
Truth #2: No. Just.... No. Once you’ve qualified for an offer in compromise, you have to go through the lengthy process of actually applying for the thing. This is very complicated. (Your first clue should be that the instructions for filing are contained in something called the Offer in Compromise Booklet, Form 656-B.)
You have to meet all the “Offer Terms” contained in Section 8 of this Booklet, and accurately disclose all your financial information. Often, the IRS will not be satisfied and will request additional information and paperwork. (Of course, we can help you with this part, too. But it will take a while.)
And even after doing all that, your offer may get rejected. (In which case you have 30 days to make an appeal and try the whole thing over again.)
Another little-known fact is that, if you try this process on your own and get rejected, then all that time that the OIC sat in the IRS office waiting to be analyzed is just extra time that the IRS will add to your statute of limitations – giving them more time to collect from you.
Get the picture? The IRS really does not want you making an OIC because that means they will have to settle for less money. So they will do everything in their power to make the process difficult for you.
Truth #3: No, you don’t. If you’re approved for an OIC, the IRS tells you how much you will have to pay.
The IRS bases their decision on how much you will have to pay on the financial information you disclosed in Form 433-A. They look at your living expenses and the area you live in and determine exactly how much money they can squeeze out of you. You don’t get to tell them how much you can afford.
Feeling discouraged yet?
The good news is, you don’t have to be. We’re here to walk you through the process and help you get prepared and submit your OIC. Just be forewarned: It’s not magic. And it’s nothing like those commercials.
If you have any questions about Offers in Compromise, give us a call at 844-841-9857, or schedule a free consultation here.