Offer in Compromise
Maryland Tax Lawyers Helping Baltimore & Washington DC-area Residents Complete OIC application process.
Tax liability is a hefty burden for some Americans. In 2013, the Internal Revenue Service approved 31,000 Offer In Compromise (OIC) applications for people experiencing financial hardship to settle their debts for a reduced amount. The IRS also had 4 million installment agreements in effect for the same year, a fact which tends to reveal people's unawareness of the OIC program or failure to seek legal counsel to get their applications approved.
Since 1987, Rosenberg Martin Greenberg has been helping people in the midst of various tax controversies. From OIC counseling to tax audit help to criminal tax defense, our law firm stands ready to help Baltimore, Maryland-area residents face their tax burdens head on. To schedule a consultation, call 410-727-6600.
What is an Offer in Compromise?
An Offer in Compromise agreement may be a legitimate option for those who either cannot pay their full tax liability or if doing so would create a true financial hardship. The IRS looks at your ability to pay, income, expenses, and asset equity.
You may be eligible if:
- You are NOT currently in bankruptcy proceedings
- You have filed all required tax forms
- You are an employer who has made all required deposits
- You do not feel you are able to pay the full amount of tax due without serious hardship
The “Fresh Start” Initiative
Previously, only about 34% of applications were approved, according to Fox Business News. However, recent changes have made it easier for people to qualify for the program. In the past, you’d have to submit a complicated form along with your Offer in Compromise request that included a statement of your monthly income and expenses. These numbers were then crunched according to a specific formula that would reveal the acceptable amount the IRS would take to settle an outstanding tax liability.
Taxpayers found it confusing to determine which expenses were allowed to be deducted. For example, what if your housing costs were more than the National Standard for your area? What about student loans? Or transportation expenses? What about unsecured debt like credit card payments?
Today, there are more relaxed National Standard tables for housing, transportation, and household expenses and the IRS is willing to accept higher costs. The agency even allows student debt, delinquent past tax debt, and credit card minimum payments in their formula for determining an acceptable offer. The multiplier used in the old formula has been reduced and finally, income-producing assets are not be considered in the “total asset” calculation. As a result, Offers in Compromise end up being a very viable option for those who want to pay their tax burden and move on with their lives.
Considerations for Making an Offer in Compromise
Often, the offer in compromise program is the only way for a taxpayer to settle a fairly substantial tax debt, particularly when there are no other means of paying the amount owed.
Benefits of an Offer in Compromise include:
- A resolution to an otherwise lengthy and stressful financial problem
- A suspension of nagging collections activity
- The ability to stay out of bankruptcy
- An opportunity to reduce taxes, rather than paying them in full
- Relief from an IRS tax lien against one’s property.
However, it is not a perfect solution for everyone. For starters, you are expected to stay current with all your tax responsibilities for a period of five years from the offer in compromise. Failure to do so could negate the OIC and put you liable for the original amount owed again.
Other possible cons of an Offer in Compromise include:
- The invasive, unpleasant nature of a full financial disclosure if there is doubt as to collectability
- Waiving of some usual tax benefits, such as statute of limitations on tax assessment or collection
- Waiving of some tax credits and refunds
- Some assets may need to be liquidated to meet debt payment requirements
- Still having to pay state taxes or other debts that are not resolved by an offer in compromise
Speaking with a Maryland tax attorney from Rosenberg Martin Greenberg is the best way for area residents to decide what is right in their particular situation. Other options may include: installment agreements, amending a filed tax return, temporary hardship delays, bankruptcy proceedings, or innocent spouse relief.
How to File for Offer in Compromise
There are five primary steps those facing IRS tax collections must take in order to successfully qualify for this type of arrangement.
- Submit the offer by filling out Form 433-A (individuals) or Form 433-B (businesses) and submitting all required documents as specified on the forms. You must also pay a $186 application fee and make the initial payment, as required by Form 656.
- Next you must decide how you’ll pay what you owe. You may choose an initial payment of 20% of the total offer amount and pay the remaining amount in five or fewer payments, or request a periodic installment plan.
- Once the proper paperwork has been submitted, you must wait for an IRS evaluation. If the IRS does not make a determination within two years, your offer is automatically accepted. Typically, it takes about 380 days for the IRS to process an application.
- If accepted, you must meet all the offer terms. The worst thing you can do is miss a payment, as this will void the offer and make you liable for the total amount owed again!
- If rejected, you may appeal within 30 days using Form 13711. Common reasons for the denial of an offer in compromise include: an “unreasonably low” offer, the conviction of a serious crime, failure to provide adequate support documentation, failure to pay the application fee, and living above the IRS Allowable Living Expenses.
How Can Rosenberg Martin Greenberg Help?
Rosenberg Martin Greenberg's tax attorneys can help you craft the perfect offer that appeals to IRS personnel. While approval of an OIC ultimately comes down to your unique financial situation, our team’s in-depth knowledge of tax law and experience in pushing offers through puts us at a distinct advantage.
Other benefits of working with a tax lawyer include:
- Access to a clear, concise explanation of how the process works and what is expected of you
- Proper wording and documentation for a submitted offer, including the payment of fees
- Assurance that all letters and phone calls from the IRS are handled promptly and professionally
- Help filing a rejection appeal and/or creating a backup strategy for handling tax debt
Keep in mind the clock starts ticking the moment you receive a tax bill in the mail, so do not delay. Call Rosenberg Martin Greenberg today to get the ball rolling on an offer in compromise or other suitable solution for tax debt relief. Our friendly professionals look forward to your call.
You can reach Brian Crepeau at 410.649.4981, email firstname.lastname@example.org.
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