How to settle your tax for less?
One of the most common questions people ask about taxes is if they can settle their tax debt for less than the amount owed. The simple answer is yes ….. if you are eligible. The program that allows you to settle your tax debt this way is called Offer in Compromise program.
When you hear TV commercials and radio talking about settling of its tax debt for “pennies on the dollar”, they are talking about the Offer in Compromise program. Although this can be a little misleading, because most times the IRS do not accept the offer in compromise program applications.
Offer in compromise
The first hurdle for most people to pass when submitting the application for an offer in compromise is to ensure that the person is in “effective compliance” with the laws of the IRS. Simply put, this means that the person must have filed all due past tax returns, make quarterly estimated tax payments. If you are self-employed, and accumulate no new tax debt. If you comply to all this, the IRS will review your offer in compromise to see if you qualify.
Another area the IRS will review is your financial data. If you are making good money and/or have a property that could settle your tax debt, you may have difficulty getting your offer in compromise approved.
For most people, offer in compromise program works when you do not have the financial resources to meet your tax debt. If you have the resources to meet your tax debt, the IRS does not want to settle at a discount, except for extraordinary circumstances to justify the deal.
What happens next after submitting an offer in compromise?
After submitting your offer in compromise application with your financial information (through what the IRS calls “collection information statement (Form 433-A)” the IRS will determine your “reasonable collection potential” ( “RCP”). The RCP is the amount IRS believes you can be able to pay within a certain period of time. If your RCP is less than the debt you owe, you may be able to settle your tax debts at a discount.
Settlements amounts vary considerably, and the amount of the settlement or the percentage is based on your specific financial situation. In other words, just because I settle person’s tax debt at a penny on the dollar, it does not mean that you will get the same treatment. Each case is based on its own merits.
Contact us today to see if you qualify for an offer in compromise program and discuss other important details of the program.