A tax attorney represents an invaluable asset when dealing with issues related to wage garnishment, tax liens, or unfiled returns, but there is one area in particular where their services are absolutely necessary. If you're dealing with the government regarding unpaid back-taxes, you need a tax attorney to help you draft what is known as an offer in compromise. An offer in compromise is essentially a proposal to lower the amount of back taxes you owe. This article briefly outlines the eligibility requirements for filing an offer in compromise and how the process works.
Eligibility
If you would like to make an offer in compromise, you must be current on all tax filings and in accordance with any established payment plans. You are not eligible if you have an open bankruptcy proceeding of any kind.
Considerations
The government takes into consideration a number of different criteria when evaluating your offer. Foremost among them is your ability to pay off your existing balance with the IRS. Keep in mind that your ability to pay, and your income, are two different things.
An individual earning $1,000,000 per year with $900,000 in legitimate, annual expenses is far less 'able' than one who earns $500,000 per year but only has $50,000 in annual expenses.
Finally, the government will examine any equity you currently have in assets like your home(s) or automobile(s). Equity in liquidation essentially equals cash on hand, and the government will assess how much equity they're willing to let slide in exchange for a promise of repayment.
In most cases, the government will only accept offers that meet or exceed (see paragraph 2) the reasonable collection potential, which is basically the amount they think they could receive from you under normal circumstances.
Payment Options
Typically, taxpayers whose offers in compromise have been accepted are required to send 20% of the total proposed payment to the IRS, along with the offer in compromise application form. The remainder of the balance is then paid over the course of two years or in five periodic installments, depending on the individual taxpayer's situation.
Exceptional Circumstances
It should be noted that an offer in compromise is not intended for those individuals who merely seek to reduce their overall tax debt. Rather, the offer in compromise was designed to help alleviate the burden of tax debt for individuals in extreme circumstances. Generally, the offer in compromise is reserved for individuals who were the victims of some sudden and unexpected accident that resulted in significant expenditures on their part. This might have been a medical emergency or a large sum of money forfeited at the expense of a family member in jail.
Ultimately, the offer in compromise is a tool designed for those in desperate need of tax debt relief. An experienced tax attorney, like LaSpada, Anthony J. PA, will be able to determine whether or not you qualify for such a program, and if so, what your ideal repayment plan looks like.
Share17 March 2015
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