Frequently Asked Questions Regarding The IRS Offer in Compromise.
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Having more than two decades of experience of Offer In Compromise representation, here are the most common questions and concerns of taxpayers inquiring about this process.
1. What is an Offer in Compromise?
An Offer In Compromise is a method of settlement offered by the IRS to allow taxpayers to settle their taxes for less than they owe. A Lump-Sum Cash Offer provides the greatest discount in making a settlement with the IRS.
2. How much must be paid to the IRS with the Offer in Compromise application?
When an Offer In Compromise application is filed with the IRS for consideration, you must include payment of a $205.00 application fee and a deposit equal to 20% of the amount of your Offer. For example, if you are offering to settle your IRS liabilities for $10,000.00, you would need to include two checks made payable to the United States Treasury – one for $205.00 for the application fee and the other for $2,000.00 for the 20% deposit. The application fee is non-refundable; however, the 20% deposit would still be applied against your outstanding IRS liability in the event your Offer is not accepted.
3. With a Lump-Sum Cash Offer, when is the 80% balance of the amount being offered due?
The 80% balance of the amount being offered would be due to IRS no later than 5 months after the Offer has been finally accepted by the IRS.
4. I do not have the ability to pay the 80% balance due in one lump sum, can I pay this balance in installments?
Yes you can. We can file a Short Term Periodic Payment Offer or a Deferred Periodic Payment Offer. With a Short Term Periodic Payment Offer the Offer amount must be paid within 24 months of the date the IRS receives the Offer. With a Deferred Periodic Payment Offer the Offer amount must be paid over the remaining statutory period on the Tax Debt. With either type the first payment is must be submitted with Form 656 and regular payments must be made with the IRS investigates the case.
5. What advantage does a Lump-Sum Cash Offer have over a Short Term Periodic Payment Offer or a Deferred Periodic Payment Offer?
A Lump-Sum Cash Offer will always provide a deeper discounted settlement. In addition, since the payment obligations under the Offer are satisfied much sooner, the IRS will release any Federal Tax Liens sooner and you do not run the risk like you do with a a Short Term Periodic Payment Offer or a Deferred Periodic Payment Offer that if you are late on one payment, the IRS will revoke the Offer.
6. Once an Offer In Compromise application is submitted, how long until I hear if it was accepted?
Typically it will take two couple months for your case to be assigned to an Examiner. The Examiner will then send us a letter requesting additional information and set a deadline of 30 days to respond. If a timely response is not made, the IRS will reject the Offer with giving you any appeals right and apply the 20% deposit to your outstanding IRS liability. Where a timely and complete response is made, the Examiner should in the next four weeks come back with an acceptance, counteroffer or rejection. If the Examiner comes back with a counteroffer or rejection, we would still have the opportunity to work with the Examiner to seek a mutually acceptable Offer.
7. What if my Offer In Compromise was rejected or I do not agree with their decision?
If you do not agree with the decision the Examiner has made you do have the right to appeal the Examiner’s decision. The decision would be reflected in a formal letter and you will have up to 30 days from the date of that letter to request an appeal.
8. Is an Offer in Compromise available for outstanding State Tax Liabilities?
Many states do have Offer In Compromise programs; however, each State has its own standards of qualification and you will have to file for a State Offer In Compromise separately than your IRS filing. For taxpayers who owe the IRS and a State, we coordinate the filings with the tax agencies to facilitate a mutually acceptable resolution with all the tax agencies.
9. While an Offer In Compromise is pending review, what collection action can IRS take?
Although it could take at least 4 months from the time an Offer In Compromise application is filed under a final decision is issued, the IRS will suspend all collection action against the taxpayer. The IRS may still during this period file a Federal Tax Lien to secure its interest in the event the Offer is not accepted; however, once an Offer is accepted and the balance of the offered amount is paid, the IRS will Release all Federal Tax Liens.
10. What can I do to protect my Offer in Compromise from being revoked once it has been approved?
For the five years following acceptance of the Offer In Compromise, you are essentially on a period of probation by the IRS. If during this period you fail to timely file tax returns or fail to timely pay taxes, the IRS can and will revoke your Offer In Compromise. If the IRS revokes your Offer in Compromise, they will reinstate the full amount of your pre-compromise tax liability including any back penalties and interest previously forgiven, and begin aggressive collection efforts on the revised balance due. Therefore, it is imperative that once your Offer in Compromise has been approved, you need to take the following steps to make sure the IRS does not revoke your Offer:
- You must file your taxes timely for the five tax years following acceptance of your offer.
- If you cannot file your 1040 by April 15th, you must request an automatic extension. If you extend, make sure you file your taxes by the extended individual deadline of October 15th. You must also timely file any related entities that flow into or affect your individual tax return because you an interest in such entity (i.e., S-corporations, Partnerships and LLC’s.
- You must pay your taxes on-time. If you owe, your taxes must be paid in full by April 15th. If you are self employed you need to make estimated tax payments that are sufficient to ensure you do not have a balance due at April 15th.
11. What experience does the Law Offices of Jeffrey B. Kahn, P.C. have in handling Offer In Compromise cases?
For anyone interested in applying for an Offer In Compromise, we first pre-qualify where you would stand with an Offer. This type of filing is fairly complex but if you engage our services, you will benefit from our experience and expertise to greatly increase your chances of having a reasonable Offer accepted. If we do not believe you are a good candidate for an Offer In Compromise, we will find the next best method for you to resolve your taxes with the IRS.
12. What are the fees for the Law Offices Of Jeffrey B. Kahn, P.C. to represent a taxpayer with an Offer in Compromise filing?
The fees for this type of filing are typically based on the complexity of the tax problem and the amount of time that will be required to prepare the documentation and handle negotiations on your behalf. Typically these costs are justified because if your Offer In Compromise is accepted you will be saving a lot more money than the fees that were involved with the filing. When we initially evaluate your case, we will let you know how much we feel you could offer as well as the amount of our fees.
13. Will the Law Offices Of Jeffrey B. Kahn, P.C. handle your Offer In Compromise in an efficient and expedient manner?
We will act as your advocate and effectively work your case. We have helped many taxpayers not only in California. Let us have the opportunity to help you.
14. I have more questions. How can I contact you?
For prompt evaluation of your case, we encourage you to contact us using our toll-free number at 866.494.6829. or send us an email for your free and confidential analysis.
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