An Offer in Compromise is a good way to potentially reduce how much you or your business owe to the IRS in taxes, interest, and fees. Of course, it is not as simple as simply shooting off a quick application and watching your tax woes disappear. The Offer in Compromise is a good option to find tax resolution if you qualify, but the process is a bit more in-depth than an online application. Here’s what you need to know about planning your Offer in Compromise.
How It Works
The Offer in Compromise is, basically, a deal you make with the IRS to pay a portion of the money you owe, rather than the full amount, and cancel the remaining debt. This option is not available to everyone, though. It is designed for individuals and businesses for whom paying the full amount owed would create a financial hardship. For individuals, that financial hardship might mean the Offer in Compromise is the alternative to declaring bankruptcy. For businesses, it might mean the difference between paying your employees versus shutting your doors for good. Ultimately, the “financial hardship” will look different from one situation to the next, which is why the Offer in Compromise application digs into your financial situation as deeply as it does.
Why Preparation Matters
As we said above, the Offer in Compromise is not an application you can quickly dash off to the IRS. It takes a good deal of preparation to pull an offer together, and you will need to provide ample documentation to support everything in the offer application. The main reason for this is that the more comprehensive your application, the better your odds are of acceptance. Offers that are not sufficiently supported are generally denied.
The other big reason why thorough preparation matters is a financial one. Part of the application process is paying a 20% down payment and an application fee. If you do not pull together a thorough application the first time, and it gets denied, the IRS will keep your application fee and apply your down payment toward your debt. If you choose to apply again with a more thorough application, you will have to pay another 20% down payment.
Planning Your Offer in Compromise
Whether you are applying for an Offer in Compromise as an individual or for your business, the best thing you can do is to work with an experienced tax consultant to prepare your offer. The IRS examiners are trained to look out for the best interests of the government, not tax payers. Not only can a tax consultant help you compile all of the documentation you will need to support your offer — and improve your chances of acceptance — but we can also guide you through any other pitfalls that would impact your chances. For example, did you know that you cannot incur any more tax debt while waiting for your offer to be accepted or rejected? Failing to pay quarterly taxes while waiting for a response could generate a rejection.
Get more information on this process as well as experienced guidance from professional tax consultants. Connect with the team at Jones & Collins in Naperville to find the tax resolution that is right for your situation!