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If you owe more taxes than you can repay
in a lifetime, chances are that you qualify for an offer
in compromise based on doubt as to collectibility.
If you have a tax liability that you can easily pay, you
probably will not qualify for an offer in compromise.
Note I said "easily".
If you have enough money to write a check to pay the tax,
you will have to do some extra planning but if paying the
tax would require you selling every thing you have or working
overtime for the next few years then, an offer to the IRS
may be easier than you think.
5 Steps to qualifying
for an Offer in Compromise
In order to qualify for
an Offer in Compromise based on doubt as to collectibility
you must:
1. Have
filed all your tax returns. If you have unfiled
tax returns then, you must file them to qualify for an OIC.
Remember, it does not matter how much you owe, because you
will not be paying that amount any way. So, if you have
not already filed all of your tax returns and that includes
employment tax returns, then get busy and file them as soon
as possible. Unfiled
returns are an automatic reason to reject offers in compromise.
2. You must not be in an active bankruptcy. If you
are in an active bankruptcy and your tax liability will
not be discharged, wait untill the bankruptcy is closed
to make the IRS an offer.
3. You are not eligible for an offer
in compromise during an audit. If you are currently
under audit, wait until the audit is over and the tax is
assessed. If you appeal the audit or go to Tax Court you
will have to wait until the case is over and the tax assessed
to make an offer. If you are under audit and you don’t know
whether to contest the adjustments you should think about
the future. Will you be able to win? Will you be able to
pay the amount even if you win? Do you owe other taxes?
If you think you may want to submit an offer after the case
is concluded, you may want to consider conceding the adjustments
and proceeding to an offer. If you are not sure, I suggest
professional help. Talk to a C. P. A. or an experienced
return preparer before you decide. Keep in mind that most
cases settle before going to court, but of those that do
go to court the taxpayers usually loose.
4. You must be current with your estimated income tax
payments if you are self employed or have non wage income.
If you have not made any estimated quarterly payments for
the last two quarters then you are not eligible. This means
that if you are required to make estimated tax deposits,
you will have to make estimated tax deposits for the last
two quarters of the current year.
5. You must have
filed all your employment tax returns (Forms 940 and 941)
and be current with your Federal Employment Tax Deposits
for at least two calendar quarters. The IRS will
automatically reject your offer if you have unfiled Form
940 or 941 tax returns. Also, if you have not made
timely and adequate Federal Tax Deposits of Employment taxes
for at least two calendar quarters, the Offer Specialist
will reject you.
Recap: To be eligible for an IRS offer you must;
A. Have filed all Tax Returns;
B. Not be in Bankruptcy;
C. Not be under audit, in appeals or in Tax Court contesting
a liability;
D. Be current for you last two quarterly estimated tax deposits
if you
are self employed; and
E. Be current with all
your employment tax returns and deposits for the last two
quarters.
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