Friday, July 10, 2015

Taking a Closer Look at the Offer in Compromise

The Offer in Compromise (OIC) is a debt settlement program allowing taxpayers to settle their balances with the IRS. The IRS, however, has set pre-qualification requirements, which means only a number of taxpayers can take advantage of this program. Here are a few things you should be aware of to manage your expectations:

Qualification is largely based in numbers. The IRS uses formulas to determine a taxpayer’s ability to pay his tax debt before it’s time to collect or before the debt expires. You have to show the IRS that you won’t be capable of paying the total balances you owe based on your net asset equity and future monthly disposable income.

Payroll taxes are excluded. Payroll taxes are considered a ‘trust fund’ of your employee’s withheld taxes. You’re considered personally liable if you fail to pay it because it’s not your money in the first place. Because of this, you can’t expect the IRS to accept your offer. If you have the option, pay your payroll tax liabilities first before your income tax liabilities.

Exhaust other routes first. The IRS won’t let you off the hook that easy. It will expect you to explore other options to pay off your tax debt. This may include using credit cards, personal loans, or even by refinancing or restructuring your other existing debts. The IRS may also want you to try an installment agreement instead of skipping to OIC right away. Therefore, it pays to consult an IRS tax lawyer first if such is your case.

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