Saturday, August 25, 2012

what everyone should know about an offer in compromise

What Everyone Should Know about the IRS
Offer in Compromise

- What Everyone Should Know about the IRS Offer in Compromise
The Offer in Compromise was a mandate by congress and is the most common way to reduce your tax debt to the IRS. The concept is simple. You only pay what you are able to pay. However, in reality, once we start understanding the Offer in Compromise, it is not a free ticket as promoted by the tax firms you see advertising on TV.
To better understand the Offer in Compromise, you should look at it as a way of making an "offer" to the IRS to pay them less. This is not an easy process and you will need to provide the IRS extensive evidence of you financial situation.
The amount you offer the IRS is a mathematical formula. Let's look at a couple of examples. Let say you owe the IRS $100,000 but you have fallen on hard times and you are now making $3,000 a month. You should be able file an Offer in Compromise for the reason of "Doubt as to Collectability" and make a "Lump Sum Cash Offer." Let's say you have monthly expenses of $2,900 which leaves you with only $100 to pay the IRS per month. With an Offer in Compromise, you will take the $100 amount and multiply it by 48 for a total of $4,800. The $4,800 will be your offer to settle your $100,000 debt to the IRS. If you can prove your financial situation, the IRS is obligated to accept your offer. In this scenario, you have reduced your tax debt by over 95%.
Let's look at another example. Let's say you owe the IRS $20,000 and you are making $4,000 per month and you monthly expenses are $3,000. This would leave you with the ability to pay the IRS $1,000 per month. Now we take the $1,000 and multiply it by 48 and this will make you offer $48,000. In this scenario an offer would not make sense because the offer amount is now much more than you owe the IRS.
We provide a free Offer in Compromise Calculator on our website at so you can estimate what your offer will be to the IRS. This will start to give you an idea of what your offer should be. As we look closer at the actual Offer in Compromise, there are some tricky aspects to it. The IRS will not accept certain expenses such as credit card payments or you child's private school. There are also limits the IRS sets for your expenses and these will vary depending on where you live, how old you are and how many children you have. The list goes on and on about how the IRS views you financial situation and therefore it is difficult to submit a good offer to the IRS. That's why many people call tax firms to help them but find out they usually charge from $3,000 to $7,000 and most of the firms do a poor job helping you with your IRS problem. Just check the Better Business Bureau. By doing a quick search on the Internet you will find that many of the firms have been indicted or are under criminal investigation. (212) 588-1113

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