Offer in Compromise

This is supposed to be an IRS "fresh start" program. If you can show the IRS that settling with you for a lump sum of money now will yield more than they can collect from you using their normal collection methods over the next five years, you may qualify to submit an offer-in-compromise.  This is not a simple process, some agents pride themselves in being difficult.  The IRS does not always follow its own guidelines and does everything it can during the process to kick an application out.  We had an agent tell us that she was working on a case submitted three years prior.  Our most recent compromise that was finalized in 9/2005 was started in 6/2002.  All of the agents involved, except one, were truly difficult to work with.  The Offer-in-Compromise application can be a very long and challenging battle today, but for that special case it can be a win-win situation.  So, with a little patience and a lot of persistence, the end result may give you a fresh start (as an alternative look at our guidelines for bankruptcy ).

You must offer:

1. The equity in any assets you own (car, house, artwork, etc.) plus;
2. The amount the IRS would be able to collect using normal collection procedures over the next five years. As a rule of thumb, use this formula to calculate this five year amount...for every $100 you can afford to pay the IRS per month, you must offer them $5,000 in settlement.

Remember, what you believe you can pay the IRS per month often differs from what the IRS feels you can pay per month. They disallow certain expenses that they do not consider "necessary living expenses". This is why you need a professional who knows how to best present your financial picture to the IRS.

A common mistake is to try and think in terms of a percentage of what you owe. We have successfully settled $500,000 for $40,000 and $400,000 for $89,000. Obviously, percentage of debt was not a criteria in either settlement.

In the first instance, the taxpayer was in ill health and his income potential was questionable. In the second case, the taxpayer had high income but no tangible assets for the IRS to levy. The second settlement also required a collateral agreement which, when properly negotiated, means that if the taxpayer's income increases beyond a specified amount, the IRS will get a percentage of the increase over the next five years.

Hale
(714) 731-2700