When facing a tax debt with the IRS, many people find themselves unsure about where to start or how to handle the situation. The IRS offers different ways to settle tax debts, but understanding how they work and the legal points involved can make a big difference. In Pennsylvania, taxpayers may have the option to settle with the IRS through a program called an Offer in Compromise. This method allows individuals or businesses to settle their tax debt for less than the full amount they owe. Knowing what an Offer in Compromise is and how it works can help people see if this could be a good option for them. At, Gibson & Perkins, PC, we are here to guide you through the legal process and help you navigate the complexities of your case.
What is an Offer in Compromise and How Does it Work?
An Offer in Compromise is a program that lets people with tax debt offer to pay less than the full amount they owe to the IRS. The IRS considers these offers when they think the taxpayer may not be able to pay the full amount in a reasonable time, either because of financial difficulties or other reasons. For example, if paying off the full tax debt would cause extreme hardship, the IRS may accept a smaller amount. However, just because a taxpayer has financial difficulties does not mean they will automatically qualify for an Offer in Compromise. The IRS looks at each person’s or business’s situation very carefully before agreeing to settle for a lower amount.
In this program, the IRS considers many factors, including the taxpayer’s income, expenses, asset equity, and ability to pay. The goal of the IRS is to collect as much as possible while also being fair to taxpayers who truly cannot pay their entire tax debt. For taxpayers who qualify, an Offer in Compromise can bring relief by lowering their tax debt to an amount that they can manage. Once an offer is accepted and paid, the taxpayer’s tax debt is considered settled, and they no longer owe anything on that specific debt. However, it is important to follow the terms of the agreement, or the IRS may cancel it.
The Process of Applying for an Offer in Compromise
Applying for an Offer in Compromise is not a quick or easy process. Taxpayers must fill out specific forms and provide proof of their financial situation. These forms ask for detailed information about income, expenses, and assets. The taxpayer must also pay an application fee unless they meet certain requirements that allow them to skip the fee. In addition to the application fee, the taxpayer must submit an initial payment with their offer. If the IRS accepts the offer, the taxpayer will then need to follow the agreed-upon terms, which may include additional payments.
The IRS takes time to review each application and make a decision. During this time, they will look at all the financial information provided to make sure that the offer is fair. It can take several months for the IRS to decide on an Offer in Compromise, so it is important for taxpayers to be patient and provide any extra information the IRS may ask for during the process. If the offer is accepted, the taxpayer must stick to the payment plan and follow the rules set by the IRS. If the offer is denied, the taxpayer has the option to appeal, but this can take even more time and requires additional steps.
I hired Paul Fellman after speeking to several different lawyers from different law firms because he was the most sincere. Paul did an excellent job on my landlord tenant issue I had on my rental property. He was there for me from the beginning to the end of the whole ordeal. I was very satisfied and I highly recommend him and his firm.
Professionalism is the Word
I highly Recommend Gibson & Perkins. I have used their services for approximately 6 years now and been through a few cases together with very positive outcomes. Personally, I have used Paul Fellman and Walter Timby on those occasions. Both, as a team & separately these Attorneys were wonderful to work with and easily accessible to reach if I had any questions. Professionalism is the word that comes to mind to describe the firm, as a whole. Always completely prepared for any surprises that may pop up during a trial. They were well versed on all pertinent info pertaining to each case. As I client, I always felt I was an integral part of the team, not an after-thought, that had to be brought up to speed a half hour before the trial started. I could not recommend this firm and Mr. Fellman and Mr. Timby any higher.
Very Satisfied
Legal Considerations in an Offer in Compromise
There are many legal points to consider when applying for an Offer in Compromise. This program is only available for people who meet specific rules, so taxpayers need to make sure they qualify before applying. For example, the IRS usually only accepts offers when the taxpayer truly cannot pay the full debt. To qualify, the IRS will review financial details to decide if the amount offered is the best possible settlement. If the IRS believes the taxpayer can pay the full debt, they may deny the offer.
Another legal consideration is that taxpayers must be up-to-date on filing their tax returns. The IRS will not consider an Offer in Compromise if the taxpayer has missing or overdue tax returns. This means it is important for taxpayers to file all necessary tax returns and have their records in order before starting the application process. People should also be aware that applying for an Offer in Compromise does not stop interest and penalties from building up on the debt. The taxpayer must continue to pay any taxes owed while the offer is under review unless the IRS has agreed to a temporary hold on collections.
Understanding the Different Types of Offer in Compromise
There are different types of Offer in Compromise, and each type is designed for specific situations. The most common type is based on “Doubt as to Collectability,” which is when the IRS believes the taxpayer will not be able to pay the full debt. In this case, the IRS will look at the taxpayer’s ability to pay and their overall financial situation. If the IRS sees that the taxpayer truly cannot pay the full amount, they may agree to a settlement that reduces the debt to an amount the taxpayer can manage.
Another type is based on “Doubt as to Liability,” which applies when the taxpayer does not agree that they owe the full amount. This situation can occur when there has been a mistake, such as a calculation error or misunderstanding about what is owed. In cases of Doubt as to Liability, the IRS may agree to settle for a lower amount if there is valid proof that the taxpayer does not owe as much as originally thought. Lastly, there is a type of Offer in Compromise called “Effective Tax Administration,” which is for taxpayers who may technically owe the full amount but have special circumstances, such as serious health problems, that make it hard to pay.
After an Accident Determining Compensation of an InjuryRelated Videos
The Role of Financial Information in the Offer in Compromise Process
The IRS relies heavily on accurate and complete financial information when deciding whether to accept an Offer in Compromise. This includes details about income, assets, and expenses, as well as debts and other financial obligations. To qualify, the IRS must be able to see that the taxpayer has limited ability to pay. Any incomplete or false information can lead to the IRS rejecting the offer and, in some cases, may lead to legal penalties for the taxpayer.
Taxpayers should be aware that the IRS has the right to verify all information submitted with the application. This verification may include checking bank records, credit reports, and other documents that provide details on the taxpayer’s financial situation. It is important for taxpayers to be open and honest on their application, as any untrue information can cause serious problems, including criminal charges in some cases. Submitting clear and detailed financial records can increase the chances of having an offer accepted and make the process smoother overall.
Alternatives to an Offer in Compromise
If the IRS does not accept an Offer in Compromise or if a taxpayer does not qualify, there are other ways to handle tax debt. One option is a payment plan, where the taxpayer agrees to pay the IRS a set amount each month until the debt is fully paid off. For some people, this is a better choice than an Offer in Compromise, especially if they have steady income and can make regular payments. The IRS offers different payment plans, including short-term and long-term options, depending on the taxpayer’s financial situation.
Another option is currently not collectible status. If a taxpayer truly cannot pay, the IRS may decide to put the debt on hold temporarily. In this case, the IRS stops collection efforts, but the debt does not go away. The taxpayer will still owe the full amount, and interest and penalties will keep adding up. However, this option can give people time to get back on their feet financially and find a better way to handle their debt. Lastly, some people consider bankruptcy as a way to deal with tax debt, although this is a big step and has long-lasting effects. Not all tax debts can be erased in bankruptcy, so it is important to understand how this would work before making a decision.
Deciding whether to apply for an Offer in Compromise is a big decision that involves looking at your finances carefully. It is not always easy to know if this program is the best choice, but understanding the basics can help. Taxpayers should think about their income, expenses, and any assets they own. They should also consider whether they are able to make payments toward their debt. For some people, settling for less than they owe can be a good way to move forward and start fresh. However, it is important to be prepared for a long process and to understand that the IRS may not accept every offer.
Gibson & Perkins, PC understands the challenges that come with managing IRS tax debt. Our experienced team can guide you through the Offer in Compromise process, helping you gather the right information and complete each step carefully. We are here to support you in making the best decision for your situation, and we are ready to answer your questions as you navigate this complex process. If you are interested in exploring your options, contact Gibson & Perkins, PC today to discuss how we can assist you in resolving your tax concerns and achieving peace of mind.