Today, I'm going to be talking to you about offers in compromise. An offer in compromise is a situation where you owe more in taxes than you have the ability to pay. In this video, I will give you a rundown on what an offer in compromise is, what steps you should take when requesting one, and what some things you should expect to encounter.
Video Transcript - Offer in Compromise
It's time to get down to the Brass Tacks. My name is Mel Sams and I'm the managing associate of Sams CPA. Today, I'm going to be talking to you about offers in compromise. I'm sure you've heard a lot on the radio and on TV about companies who are trying to settle your tax debt and resolve your tax issues, and do all these things. What all those companies have in common is that they are all filing what is called an offer in compromise on your behalf.
What an offer in compromise is ... Now, before we go to that, I suggest you watch our video about unfiled tax returns, because unfiled tax returns is something that tends to lead into an offer in compromise, and all of your filings have to be satisfied and current in order to qualify for an offer in compromise. Check out that video first, then come back to this one. But, if all your returns are filed, great.
What is an offer in compromise? An offer in compromise is a situation where you owe more in taxes than you have the ability to pay, for any number of reasons. It is essentially a formal offer that you're making to the government to satisfy your total tax debt for less than what the face value of the debt is. It's done through submission of a package of forms and a $186 application fee, nonrefundable.
In those forms, you are going to come across questions regarding what your monthly expenditures are, what your assets are, what your liabilities are. You have to disclose information about everything you own, everything you owe, and then the money you have coming in. Typically, we have to attach pay stubs, bank statements, things like that. You have to disclose IRAs, 401(k)s, etc, property, vehicles. It gets pretty detailed, but what the government's trying to establish is, what is your ability to pay.
There is a great eligibility tool on the IRS website to determine whether you qualify. It's called the offer in compromise prequalifier. I highly recommend going through that. It's interactive. It's actually very informative, and it'll tell you by answering all the questions if you qualify. Now, just because you get a no necessarily when you do it doesn't mean that, with the help of a CPA, you may not be able to restate or find some other circumstance that could qualify you, but generally if that prequalifier gives you a no, you may then need to look towards a payment plan or possibly looking at prior returns to see if amendments can be made to help with some of that tax debt. Back to the offers in compromise.
What happens is, you submit this package, this application. We wait, we submit the application fee. We have the option of sending in a good faith deposit with it. We make our offer and then we have the option of sending in a percentage of that with it, generally 20% as a sign of good faith. It doesn't change your chances of having this done, but just keep in mind that whatever you send in; the application fee, the good faith deposit, that money's going to be kept. Whether the IRS settles your debt or not they're going to keep that money, and if they give you a denial, they're going to keep that money. Keep that in mind, there is some risk.
If your offer is accepted, you have the option of paying in a lump sum within a certain period of time, or you can make periodic payments over a two year period. All of that's documented on the application. You'll let IRS know how you intend to pay when you submit your paperwork. If you're denied, you have 30 days to file an appeal. A CPA can help you navigate through these things. We help people with this all the time. Feel free to call us if you have any questions on this process.
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