IRS Offer in Compromise Program

An Offer in Compromise is a settlement with the IRS that allows you to settle your tax debt for less than what you owe. The IRS will accept an Offer in Compromise settlement if you can prove to them that the amount you are offering is the most that they could expect to collect from you through other means. In other words they will settle for an amount equal to your reasonable collection potential. Your reasonable collection potential is your net equity in assets plus your disposable income multiplied by 12 or 24 months.

Basic Offer in Compromise Formula: 

Net Equity in Assets (@Discounted Value) + Disposable Income X 12 or 24 = Tax Settlement

That looks simple and direct but nothing with the IRS is simple and direct.  It's made extremely difficult and confusing because the IRS calculates these amounts according to its own rules and standards, not based on your actual household expenses and financial situation. The MyTaxBreak Offer in Compromise preparation program was created with these rules and standards built into it and it automatically takes them into account and applies them. It will automatically apply the maximum discount in value allowed for each asset type. For instance you don’t have to claim 100% of your home’s fair market value or your 401k’s full value. You're allowed to reduce these values to a quick sale or liquidation value which varies based on the type of asset involved.  This results in a lower Net Equity in Assets amount which results in a lower tax settlement.

It also applies the maximums allowed for each type of expense so you take full advantage of the expenses the IRS is required to give you.   For instance the IRS must give you an allowance for out of pocket medical care and additional maintenance expenses if you have a high mileage vehicle.  The MyTaxBreak program gives these to you up to the maximum allowed.  This reduces your disposable income which results in a lower settlement amount.


Another Advantage of Filing an Offer in Compromise

One main advantage, beyond settling the back tax debt, is that the IRS is forbidden from taking any enforcement (wage levy/garnishment, bank levy, A/R levy) against you while they review your OIC settlement proposal. If the IRS has already begun enforcement they may even stop it, but you’ll have to call their collections department at 800-829-7650 to ask them to do so. Usually this is as simple as advising them you have a pending offer in compromise. Sometimes they’ll make you go through your financials prior to releasing the wage garnishment or bank levy.  This will be much easier once you've completed the OIC Preparation Program because it will deliver the financial form to you that you'll need to provide to the IRS colleciton's department.  Depending on your circumstance it could be as easy as delivering the form to the collection's agent assigned to your case and saying, "I'm filing an offer in compromise".

Also, if the IRS has not filed a tax lien against you they generally will not while your in the Offer in Compromise program.  By getting your settlement proposal in quickly you can avoid having title to your home and other assets clouded as well as the inevitable hit to your credit score.


One Disadvantage of Filing an Offer in Compromise

One disadvantage of the Offer in compromise is that it will stop the collection expiration statute from running. The IRS only has ten years from the date the tax was assessed to collect the debt from you. If your debt is close to expiring the OIC will delay that from happening.  Meaning from the date the IRS accepts your Offer in Compromise for processing to the date they either accept it or reject it, the collection statute is paused.



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