Filing an offer in compromise is a great way to significantly reduce your back taxes with the Internal Revenue Service. However, it is not as simple as filling out a few forms. To be successful with an offer in compromise, you need to plan ahead and pay close attention to the details.
The first step to success is actually determining if you qualify for this program. I know this sounds simple enough, but determining your eligibility is no easy matter. As it can take a person more than 20 hours to determine if they simply qualify for the program.
To determine if you qualify, you may need to complete IRS Form 433 or 433-A, and these forms can be time consuming. These forms will require you to disclose all of your financial information. This includes all of your bank account information, such as names, addresses, and account numbers for all of your bank accounts. Additionally, you must provide three months’ worth of statements on each account.
You’ll also need to disclose information about your vehicles, such as the VIN number, fair market value, and your auto loan balance. Additionally, if you own any real estate, you will also need to disclose the fair market value of your real estate and the balance of the mortgage on your home.
This is just a sample of the information that must be provided to the Internal Revenue Service which they will use to determine if you qualify for the Offer in Compromise Program.
However, before you submit an offer to the tax authorities, you need to know whether or not you qualify because there are steps you can take to qualify.
For example, take John Smith, who owes the government $25,000 in back taxes. John owns a home or has some investment, but he has $23,000 in a savings account and a 10-year-old car with 128,000 miles. If John were to simply submit an offer to the IRS with the above information, they would not approve the offer and would take the entire $23,000 from John’s bank account.
However, before submitting the offer, John purchased a new vehicle for $30,000 using the $23,000 in his savings account and took out a $7,000 auto loan. This would allow John to protect a large percentage of his offering asset in the compromise calculation and John would be a more favorable candidate to be approved for an OIC.
Preparing a successful offer in compromise is time consuming and technical in nature. If you have back taxes with the IRS and want to settle by doing an Offer, then you should seek the professional assistance of an experienced professional like the author of this article.