Have a large tax debt that you’d like to settle with the IRS for pennies on the dollar through the Offer in Compromise program? Filing an Offer in Compromise allows taxpayers to make an offer to the IRS to settle the entire amount due for a lesser amount if they cannot afford to pay.
The main focus of my CPA practice is income tax representation for individuals. Many taxpayers who come into our Raleigh, NC office looking to settle their tax debts consult with us about the Offer in Compromise tax resolution option, also sometimes referred to as the “Fresh Start” program or initiative. Below is some information about qualifying to file an Offer in Compromise with the IRS and how the amount of an offer is calculated to settle the tax debt.
IRS Offer-in-Compromise Qualifications
To even be considered for the Offer in Compromise program, a taxpayer must have filed at least the last six (6) years of tax returns. Additionally, a taxpayer must be making current tax payments. Current tax payments require the proper federal tax withholdings for W-2 employees or remitting the proper quarterly estimated tax payments for self-employed individuals or independent contractors. But wait! Can’t the current tax payments and issues wait until after the prior year tax issues are handled first? Unfortunately, no! Current payments must be made in addition to addressing back tax issues before a qualified Offer-in-Compromise can be made.
How to Calculate an Offer in Compromise
Taxpayers often want to know how much savings they can achieve by seeking a fresh start under the Offer in Compromise program. For some taxpayers they can save as little as 10% and for other taxpayers it can be 85% or higher. It really just depends on the personal financial situation of each taxpayer. Fortunately, the IRS has set forth guidelines as to what income, assets, and expenses are factored into determining whether you have the ability to pay off the debt in full. If it can be demonstrated based on the guidelines that you don’t have the ability to pay in full then an Offer-in-Compromise will likely be accepted. The financial guidelines are detailed in IRS Form 656-B available on the IRS website.
Is Filing an Offer in Compromise Right for Me?
Filling an Offer-in-Compromise may not be the best solutions for taxpayers and in some cases it may even make a tax situation exponentially worse if the Offer in Compromise is filed incorrectly! Other tax debt resolution options that may be more appropriate include pursuing uncollectible status, regular installment agreements, and partial-pay installment agreements.
If you or someone you know in the Raleigh, NC area needs help with an Offer-in-Compromise (Fresh Start Program or Initiative)or back taxes, contact me so that I can help. I can be contacted by phone at (919) 792-8511 or you can email me directly using this link.
Lauren Massie, CPA, PLLC
8480 Honeycutt Road, Suite 200
Raleigh, NC 27615
Lauren Massie, CPA, PLLC serves clients in North Carolina throughout the Greater Triangle Area including cities such as Raleigh, Wake Forest, Cary, Durham, Chapel Hill, Hillsborough, Youngsville, Franklinton, Garner, Knightdale, Zebulon, Angier, Clayton, Louisburg, and Wendell.