JK Harris Tax Resolution Blog

If you have dealt with back tax issues within the last ten to fifteen years, you have probably heard the term Offer in Compromise. Maybe you have done some research in regards to the IRS Offer in Compromise program, depending on how serious your tax problem was. Tens of thousands of people submit Offers in Compromise each year to the IRS. With all of these people participating in the program and all of the success stories you hear about it on the Internet, or on television, why shouldn’t you do it? Let’s answer that question, by digging further into what an Offer in Compromise is and how it works.

The Offer in Compromise program was originally created by the IRS and later adopted by many states. It allows a taxpayer to settle his or her tax debt for less than the amount they actually owe. Sounds great, right? I don’t have to pay as much as I originally owed and I get myself out of tax trouble. Unfortunately, it’s not that easy. You cannot simply apply for an Offer in Compromise and have your tax debt automatically lowered; you must meet a number of qualifications. The first criteria you have to meet is the one that disqualifies most people from the program: you have to exhibit an inability to pay the tax debt you owe. The IRS will look at how much you earn each month, your monthly expenses, and all of the equity that you have in assets (I.E. bank accounts, vehicles, investments, etc.) when determining your ability to pay the debt and/or qualify for an Offer in Compromise. This investigation process is very long and tedious. It can be extremely difficult for someone who is not a trained professional. The IRS requires a number of forms be prepared when submitting an Offer in Compromise and numerous supporting documents must be sent in to back up your inability to pay. The paperwork can seem to be a never-ending process, as the IRS requires up to date financials.

The second criterion you must meet is compliance from the time you submit your Offer in Compromise forward. What is compliance? Compliance is an IRS term, which describes your status in regards to filing tax returns and paying tax debts. You are only deemed to be compliant if you have filed all of your tax returns in a timely fashion and have resolved all back tax debts incurred while participating in the Offer in Compromise program (I.E. You file for an Offer in Compromise in 2005, it is accepted in 2006 and you owe a tax balance for 2007. You must pay the 2007 balance on time, or you are deemed to be non-compliant, you are removed from the Offer in Compromise program and you are back to owing the original tax debt plus penalties and interest.)

Above and beyond the two criteria mentioned above, you also have to pay a portion of the Offer in Compromise amount up front for certain Offer in Compromise types and a non-refundable $150 processing fee.

With all of this information in mind, the Offer in Compromise can be a very beneficial program to the individuals who qualify for it. It is not a magic wand to erase all of your tax debt without any work and it is definitely not designed to allow you to hide assets or money from the IRS. If you have back tax debt and are considering an Offer in Compromise, I would recommend consulting someone experienced in handling OICs, as opposed to embarking on this journey on your own. There are very reputable companies that have years of experience in dealing with the IRS, such as JK Harris and Company. Any time you have a tax issue, it can be a very scary and trying experience. Hire a reputable firm, keep good records and be honest throughout the process. It will go a long way toward resolving your tax issues.