When you can’t afford to pay back your IRS debt in full
Whether you’ve fallen on difficult times or previously enjoyed a high income but now find yourself in the uncomfortable position of receiving past due tax notices from the Internal Revenue Service, you are not alone. There are millions of Americans who are unable to pay their past due tax liability to the IRS.
Along with the notices you receive from the IRS requesting payment on your past due taxes, you may have experienced an equal number of letters from tax resolution groups and attorneys promising to settle your back tax liability for “pennies on the dollar.” They promise they can save you “up to 90% or more from what you owe” and thereafter quote you thousands of dollars to “settle your debt with the IRS.” Beware!
So what exactly is an Offer in Compromise?
Simply put, with an Offer in Compromise agreement between you and the IRS (also known as an “OIC”), you pay (and the IRS agrees to accept) an amount of money that is less than the full amount of tax owed. The IRS acknowledges that, in many cases, if they do not receive some money from the taxpayer voluntarily (or involuntarily through levies or wage garnishments), they may never receive the amount the taxpayer owes. In other words, the IRS acknowledges that “something is better than nothing.” The IRS also realizes that by accepting an OIC from a taxpayer, it allows the taxpayer to have a “fresh start” and believes that the taxpayer will not repeat the same pattern and incur future tax liability.
How does an OIC work?
The IRS wants to determine your ability to pay. This includes an income and expense analysis as well as an analysis determining the appreciable, if any, equity the taxpayer has in assets. The IRS will also look at ‘lifestyle’ to see if that lifestyle falls beyond what they consider reasonable. For example, the IRS will want a higher offer from you if you have a car payment higher than what they deem is ‘reasonable’. To do this, the IRS has developed “National Standards” for certain expenses such as housing and vehicle expenses. Most taxpayers fall within those standards. If after the analysis, the IRS determines that there is a “doubt as to the collectability” of the tax debt owed, the IRS will then determine the amount the taxpayer should pay based upon that formula.
Understand – and this is key – that this is a formula driven process based upon the financial information the taxpayer submits.
If a taxpayer qualifies for an offer amount of $3,455, that amount will not change whether the taxpayer owes $30,000 or $300,000. This analysis shatters the myth that it is a “negotiated” settlement like many resolution companies would like you to believe. “It’s a ‘one size fits all’ approach. There are no individual exceptions when submitting a ‘Doubt as to Collectibility Offer In Compromise,” says David S., a former IRS Revenue Officer.
If you’re interested in seeing if you qualify, get started today. Remember, Wiztax gathers all of the necessary information from you through our online tool. We then do all of the calculations necessary to determine qualification and options for repayment and present you with your options, including the Offer Amount you can submit to the IRS. Some will qualify, some won’t. We’ll tell you – and provide you with alternate options (like an Installment Agreement) if you don’t. All for a flat fee.
The IRS will run a formula based on your income, assets, and allowable expenses. The result is the amount the IRS thinks is reasonable to collect from you – and the IRS won’t take less than that.
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