What is An Offer in Compromise? It Is a Legal Way to Settle Tax Debt for Less than You Owe.
An offer in compromise is a tax debt settlement option for taxpayers who meet eligibility requirements and owe either tax deot to the Internal Revenue Service or the New York State Tax Department. There are several factors that the IRS and state tax authorities consider when deciding whether to accept offers in compromise from taxpayers. Factors include income, expenses, asset equity and the ability to pay. In examining all these factors, the IRS and state will check and analyze your tax returns and current financial records and statements so that they can determine whether or not you are the right candidate for an offer in compromise tax debt solution.
In addition to meeting the specific eligibility requirements described in the following sections, you will need to prove to the tax authorities why the amount you are offering to pay is the maximum they will be able to get from you. You will have to show why you simply don’t have the income or financial assets to pay the full amount you owe or to pay your returns on time.
IRS Offer in Compromise Eligibility Requirements
Eligibility requirements to be considered for an IRS offer in compromise include the following:
- All required tax returns must be filed.
- There cannot be any open bankruptcy proceedings—bankruptcy must be discharged and closed.
- Estimated tax payments for the current year must be made before filing.
- If you own a business, you must already have made all the necessary tax deposits.
If you fail to meet any of these requirements, you cannot apply for an IRS offer in compromise.
New York State Offer in Compromise Eligibility Requirements
NYS considers offer in compromise applications from:
- Insolvent individuals or businesses
- Individuals or businesses discharged in bankruptcy
- Individuals who cannot pay their full debt because it would cause undue economic hardship.
An offer in compromise is a lawful option if you are unable to pay back tax debt because you have insufficient funds or it would cause financial hardship, but you will need to prove your reasons for not paying your taxes on time. Our offer in compromise Tax Attorney is here to help you.
An offer in compromise is not right for every situation. You must meet strict eligibility requirements. You must also consider that the IRS will expect you to use all your available assets, including any equity in your home or equity in other assets, to pay off the amount you owe. This could have negative long-term consequences for you. There may also be concerns related to the time limit the IRS has to collect unpaid back taxes, which is 10 years. In some cases the IRS looks beyond your current income and assets and asks for future income in an IRS Income Collateral Agreement. To learn whether an offer in compromise may be a viable solution for your tax situation, or if another solution makes more sense, contact Attorney Timothy S. Hart to schedule a free consultation. Call our New York City office at (917) 382-5142 or our Albany office at (518) 213-3445 or use our online form.
Reach Out
Our Experienced Offer in Compromise Tax Lawyer Answers FAQs
Following are answers to frequently asked questions about offer in compromise programs. To get well-informed answers for your unique tax debt situation, speak directly with our offer in compromise tax lawyer.
An article in Forbes said that the IRS accepts only 40% of offer in compromise applications. Of course, this means that 60% of applications are rejected. The IRS officers look for a number of factors before approving an offer in compromise application. They check your ability to pay. If you are unable to pay the entire amount of your tax debts due to not having sufficient bank savings and cash, the IRS may accept your offer in compromise request.
However, they will also check other factors, such as your income, expenses, charities, investments, asset equity, etc. If they find any incorrect information or any form of manipulation, they will immediately reject your application. If you don’t actually qualify based on eligibility requirements, they will reject your application. Even if you meet eligibility requirements but make innocent mistakes filling out the complicated application forms, it could get your application rejected.
Therefore, it is very important to be especially careful when you apply for an offer in compromise. To move the approval needle in your favor, you should consider hiring an experienced tax attorney for offer in compromise application assistance. Our New York-based attorney can handle IRS offer in compromise requests for clients throughout the country.
An offer in compromise can work, depending upon your financial and tax situation. If your financial circumstances show that you can afford to pay the full amount of back taxes you owe, then an offer in compromise will probably not work for you. Every taxpayer’s situation is different. We can advise you whether an offer in compromise may work for you once we learn about your unique financial situation. Contact our law firm today to arrange a free, no-obligation consultation with an offer in compromise tax attorney.
What is a good offer in compromise depends upon your case. In general, the IRS will typically accept an offer when, based upon the evidence submitted, …
- The government is unlikely to collect the liability owed in full
- And the amount offered equals at least the amount that the IRS calculates it can collect from the taxpayer’s 1) equity in assets such as bank accounts and other property and 2) disposable monthly income over the statutory collection period.
This determination is often referred to as the “reasonable collection potential.” If your offer is too low and does not meet the reasonable collection potential, you could find your application rejected outright. Our tax attorney Timothy S. Hart, who understands the formula the IRS uses in calculating what is reasonable, can help you determine what you can afford to pay and what the IRS (or state) will accept and file the application on your behalf.
The IRS offer in compromise application filing process involves several forms that must be accurately completed. They include the following:
- Form 656, Offer in Compromise. This form is for individual and business tax debt. If you have both that you are seeking an OIC for, you will need to fill out separate forms for each. The form also contains a section where you explain your circumstances and why you should be considered for an offer.
- Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals
- Form 443-B, Collection Information Statement for Businesses.
- A non-refundable application fee of $205
- A non-refundable initial payment for each Form 656 (as needed)
For paying the application fee and initial payment for the form 656, you will get certain payment options that are Lump Sum Cash and Periodic Payment plans. You can choose any of these two payment methods as per your financial ability. Typically, the quicker you can pay the better the discount.
You will also have to submit the comprehensive details of all your income, expenditures, income sources, assets, and equity for documentation purposes. While there are instructions for filling out these forms, it is highly recommended that you seek the advice of a tax attorney familiar with the offer in compromise filing process to assist you.
The IRS will evaluate your application. If they accept your offer, the tax debt settlement process will begin. The IRS and you will come to an agreement of what maximum percentage of tax debt you can afford to pay to the IRS.
For a New York State offer in compromise, there are also complex application forms to fill out (DTF-5, DTF-4 and DTF-4.1) and documentation to provide, including copies of federal tax returns, bank account statements, retirement account statements, a credit report and other supporting information.
There are many payment options, but they all are variations of a lump sum cash option or a periodic payment option. The lump sum cash option requires that you submit an initial payment of 20% of your offer amount with your application. You then wait until you receive a written acceptance of your offer and then you pay the remaining balance of the offer amount.
The periodic payment option requires you to submit your initial payment with your application and continue to pay the remaining balance monthly while the IRS considers your offer. If your offer is accepted, you would continue to pay monthly until the balance is paid in full. There are additional options as well. As long as you live up to your end of the agreement, your payments will not change once your offer is accepted.
In addition to the payments you make with your offer, you must pay a non-refundable application fee for the amount shown on Form 656. Most recently, it is $205. You must pay the fee for each Form 656 submitted. If you meet certain low-income guidelines, or are filing based on doubt as to liability, you do not have to pay the application fee.
If you hire an offer in compromise tax lawyer, you will also pay an attorney fee. While you may want to save the money by not getting professional assistance, it can be to your great benefit to consult with a skillful tax attorney. Should you file on your own and leave out needed information or make other errors, your application may very well be returned for more documentation or be denied completely. In the event of rejection of your OIC application by the IRS, you can’t reapply for the same year.
Yes. You can appeal the denial if you disagree. To appeal, you will fill out another complex form (Form 13711, Request for Appeal of Offer in Compromise). However, this can be a very complicated and lengthy process. You may get frustrated while completing the formalities of this procedure, which is where our attorney Timothy S. Hart can help. Call today to arrange a free consultation about applying for an offer in compromise or getting help with the appeals process if your initial application was denied.
Why Get Help from Offer in Compromise Tax Lawyer Timothy S. Hart
An offer in compromise application is very complicated. A single mistake is sufficient for the IRS or NYS to reject your offer.
Tax Attorneys are professionals who understand how to help taxpayers resolve debt problems, including through offers in compromise when that is the most effective method for an individual’s circumstances. Our Tax Lawyer Timothy S. Hart, who is both an accomplished IRS Tax Lawyer and a Certified Public Accountant, has assisted many taxpayers in New York and throughout the country in resolving IRS and state tax problems. He understands the complexities of the offer in compromise process and how to get the best outcomes for clients under the pressure of burdensome tax debt.
To arrange a free, no-obligation telephone consultation, call us today. You can reach our NYC office at (917) 382-5142 or our Albany office at (518) 213-3445. If you are still on the fence about calling, it may help you to know that we have an A+ rating with the Better Business Bureau.
Get Tax Relief
An experienced offer in compromise tax attorney may be able to help you reduce tax debt. Don’t wait to reach out for help.
While many taxpayers feel helpless when thinking about paying back taxes, there are solutions available. You could potentially reduce your overall tax liability and put an end to expensive penalties with an offer in compromise. Take the first step to learning about your options for relief by talking to an attorney with in-depth knowledge of tax settlement and relief options.
How to Qualify for an IRS Offer in Compromise
You can confirm your eligibility and learn if you may qualify for an IRS offer in compromise by using the IRS pre-qualifier tool. The tool allows you to confirm your eligibility and prepare a preliminary proposal. It asks you to fill out an initial status questionnaire, information about your location, household and tax debt, information about the value of your assets including your home and car, your household income, and typical monthly expenses. At the end of the questionnaire, the tool will provide you with a couple of payment options that you can submit as an offer. While you will probably wish to seek the help of an offer in compromise lawyer before submitting your offer application, using this tool can help you think through the process and the type of information you will need to provide.
Undue Economic Hardship
Undue economic hardship is when an applicant can’t pay their tax debt in full and meet all of their reasonable financial obligations. Under the New York State offer in compromise program reasonable financial obligation includes but are not limited to:
- food, clothing, housing costs, auto, etc.
- medical expenses for taxpayers or dependents
- child support payments you must make under a court order, or other court ordered payments.
The key to understanding undue economic hardship under the offer in compromise program is that the taxpayer needs to demonstrate extreme hardship and not that it would just be difficult to pay the tax debt. That is where it is very helpful to have a New York State tax attorney with experience making these requests handling your case.
The New York State offer in compromise program is an agreement between the taxpayer and the state, which allows for full or partial reduction of unpaid taxes. In almost all cases, the penalties and interest are waived. The amount owed will be reduced based on applicant’s assets, income, expenses, family size and overall ability to pay off debt within five years from the date of acceptance under this program without penalty. The program is not helpful if the taxpayer has no ability to pay in many instances since the New York Tax Department will want a reasonable amount to settle the obligation. In many cases however, the reduction they agree to is very significant and worth the effort.
Grounds for the IRS Accepting an Offer in Compromise
The IRS may accept an offer in compromise of a tax debt based on these three main grounds:
- Doubt as to Collectability– A reasonable doubt exists that the taxpayer can ever pay the full amount of liability owed within the remainder of the statutory collection period.
- Doubt as to Liability– A legitimate doubt exists that the assessed tax liability is correct and owed. Possible reasons to submit a doubt as to liability offer include: (1) the examiner made a mistake interpreting the law, (2) the tax examiner failed to consider the taxpayer’s evidence presented, or (3) the taxpayer has new evidence to consider.
- Exceptional Circumstances (or “Effective Tax Administration”)– In this circumstance, there is no doubt that the tax amount owed is correct, and there is potential to collect the full amount of the tax owed, but an exceptional circumstance exists that would allow the IRS to consider an offer In compromise. To be eligible for compromise under this basis, a taxpayer must demonstrate that the collection of the tax would create an economic hardship or would be unfair and inequitable.
Tax Settlements
Attorney and CPA, Timothy S. Hart has worked up close and personally with many, many clients grappling with massive tax problems. He understands the stress, anxiety, and uncertainty a person feels when they get that letter or phone call from the IRS or New York Department of Taxation and Finance demanding payment of overdue taxes. With a skilled attorney at your side, you can take a deep breath, create a strategy, and find a way through to the other side. Consider these successes:
An Affordable Payment Plans
We represented a business owner before the New York State Department of Taxation because of a sales tax criminal investigation of his business. We were able to negotiate a partial payment installment agreement plan of $1,500 a month to pay off the over $500,000.00 in sales taxes owed, with no criminal charges being filed. We represented an individual client and convinced the IRS to accept a monthly payment plan of $1,500 for their $810,800 tax debt, even though she owned a valuable real estate partnership interest. Lastly, for a client that owes the IRS $2,312,145, we were able to convince the IRS to accept a $3,163 monthly payment plan to pay off the tax debt.
Settlements with the IRS
Our tax law firm negotiates aggressively in a solution-focused manner to achieve account settlements with the IRS that are manageable. One of our clients, Jeff K. owed the IRS $1.789 million, and our tax problem lawyers were able to strike an agreement in which he could settle the debt by paying just over $351,000. Another client, Marino F. owed $189,100 in civil penalties related to unpaid payroll taxes and income taxes, and they settled for $79,273. Another elderly client, John M. whose wife had passed away found out that she did not pay the taxes owed on her income when they filed their joint income tax return. We were able to reduce the $128,466 IRS assessment to zero through filing an innocent spouse claim. With the same client, we were able to settle his Ohio tax debt of $10,700 for only $221. We have also been successful in having the IRS remove penalties assessed in numerous cases.
Settlements with the New York Department of Taxation
Our law firm has had tremendous success in negotiating on behalf of clients with the New York State Tax Department to settle old tax debts for a fraction of the amount due by utilizing their offer in compromise program. One client, Karen P. owed $430,000 in payroll taxes, and she settled the account for $70,000. Another client, Misha A. owed over $100,000 in unpaid sales tax from a failed business, and we were able to settle for $49,000 payable over 60 months. For another business client, Nite M. owed $850,000 in sales taxes and was able to settle the account for less than half that amount ($323,000 paid over 5 years) even though they are still in business and profitable. Lastly, in the case of another client, while married our client had a joint income tax debt of over $57,000. We convinced the New York State Tax Department she was an innocent spouse and lowered her liability to zero. Needless to say, these clients were pleased with these outcomes.
When it comes to tax law, it’s all about understanding the technicalities and finding ways to achieve solutions that clients can manage. Most clients want a resolution so they can move forward with their life, with less anxiety, but they’re scared and confused because the law is complicated and tax institutions can be intimidating. Our law firm will walk beside you every step of the way, providing reassurance, communication, guidance, and tangible solutions.
Neither the IRS or New York State are bound by the offer amount or terms proposed by the taxpayer when the taxpayer makes an offer to settle their back tax debt. Tax investigators for these agencies may negotiate a different offer amount and terms if appropriate. The investigator may determine the proposed offer amount is too low or the payment terms are too protracted to recommend acceptance. In these situations, the tax investigator may advise your offer in compromise tax lawyer about what larger amount or different terms (payment amount or payment dates) would likely be recommended for acceptance of the offer.
Timothy S Hart, the founding partner of the tax law firm of Timothy S. Hart Law Group, P.C. is both a New York Tax Lawyer & Certified Public Accountant. His area of expertise includes innovative solutions to solve your Internal Revenue Service and New York State tax problems, including tax settlements through the Federal and New York State offer in compromise programs, filing unfiled tax returns, voluntary disclosures, tax audits, and criminal investigations. [ 
