There are plenty of instances where we may be able to negotiate a settlement of the tax debt for much less than the full amount. This procedure is referred to as an offer in compromise.
An offer in compromise is literally an offer you make to the IRS to settle your debt for less than what you actually owe. In reviewing your offer, the IRS will consider multiple factors, including the liquidation value of your non-exempt assets and also the excess income you have to pay your existing debt.
(Here is a brief clip on our offer in compromise representation services.)
IRS Representative for Offer In Compromise
At Huddleston Tax CPAs, our professionals have the expertise to guide you through the offer in compromise process and produce the best possible result. Our team has a thorough understanding of how the IRS calculates the value of your tax debt, so we can utilize this understanding to develop the best strategy for you.
Whether you have a tax lien, an IRS levy in place to collect past tax debt, or are simply struggling to pay off your debt, Huddleston Tax CPAs can help you. If you owe upwards of $10,000 to the IRS, we can provide the assistance you need.
Offer In Compromise Categories
Offers in compromise fall into one of three categories. These categories are:
- Cash offers
- Short-term deferred payment offers, and
- Deferred payment offers (which, in turn, have three distinct payment options)
No matter which category your offer in compromise falls into, the IRS will expect the offer to include the “quick sale value” of your assets. Typically, the quick sale value is 80 percent of the fair market value, but the quick sale value can vary depending on the particular type of asset. For instance, real estate owners should bear in mind that a quick sale will eliminate much of the equity you have in your asset (i.e. your home).
Your offer must reflect your excess income to a certain degree. The term “excess income” is defined as income which is still available after reasonable living expenses are deducted from your net income. The IRS will make a determination on your offer by examining both your tax debt and your excess income. The particular category of your offer in compromise will also impact the IRS’s determination.
- If you make a cash offer, the IRS will expect an offer which includes 48 months of your excess income.
- If you make a short-term deferred payment offer, the IRS will expect an offer which reflects 60 months of your excess income. The full payment would occur after 90 days but within 2 years of the IRS’s acceptance of your offer in compromise.
- If you make a deferred payment offer, the amount of your offer must be equal to your monthly excess income multiplied by the number of months remaining on the collection statute. Though there can be exceptions, the statute of limitations for collection on your tax debt is 10 years from the date the debt was assessed.
Under the right circumstances, an offer in compromise can be a very wise choice. If the net value of your assets does not exceed your total debt, and depending on your excess income, an offer in compromise can result in substantial savings.
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