Is an IRS Offer in Compromise a Good Idea?

If you meet minimum qualifications and are truly in dire straits, an amended IRS offer in compromise under the Fresh Start Program is a good idea. We examine those minimum qualifications below. An IRS offer in compromise could slash your past-due income tax bill. However, taxpayers should be aware that an OIC could negatively affect your credit score and the IRS may count the forgiven tax debt as income.

In some cases, bankruptcy, as opposed to an IRS offer in compromise, is a good idea. More on that below as well.

The bottom line is that, if you have unpaid income tax debt, you have options aside from an installment agreement or simply straight-up repayment. Only a Chicago bankruptcy lawyer, who also focuses on tax matters, lays out all these options in language you understand, not Legalese. Working together as partners, attorneys and clients determine the best path forward.

Types of OICs

The Offer in Compromise program is designed for distressed individuals or businesses who are unable to pay their tax liability in full. The types of OICs are:

• Doubt as to Collectability: The most common form of OIC is available if the taxpayer is flat broke and has zero assets. The IRS usually agrees to a DC OIC if the taxpayer cannot pay the full tax debt based on their income, expenses, and asset equity. Usually, before they make offers, taxpayers partner with Chicago bankruptcy lawyers to determine what offer the IRS will accept.
• Doubt as to Liability: This relief is available if there is a legitimate dispute about whether the tax amount is correct. The error could be due to a miscalculation, incorrect interpretation of tax laws, or missing documentation. These OICs are extremely rare because the IRS usually has its ducks in a row.
• Effective Tax Administration: Taxpayers who don’t qualify for one form of relief, such as innocent spouse tax forgiveness, may qualify for an equity-based ETA OIC. The IRS also considers excessive economic hardship and other extenuating factors, such as the death of a family member.

OICs usually involve some back-and-forth negotiation over the amount. Once the parties agree on the new amount due, it’s payable as a lump sum or via an installment agreement, depending on the OIC terms.

Income Tax Repayment in Bankruptcy

Chapter 13 bankruptcy is a better option than an OIC in many cases. Chapter 13 allows debtors to keep their houses, cars, and most of their other assets. These debtors are also free to pay monthly bills and, in some cases, larger expenses, such as the purchase of a new car.

For tax purposes, Chapter 13 is an automatic five-year installment agreement. The IRS cannot send letters or make any other collection attempts, such as bank account levy, as long as the debtor makes payments.

A Chapter 13 installment agreement also has elements of an OIC. The IRS is a creditor, just like any other creditor. A Chicago bankruptcy lawyer often successfully negotiates with creditors to reduce the interest rate or amount due, especially if the debt is dischargeable. For the IRS, like all other creditors, something is always better than nothing.

Work With a Diligent Cook County Lawyer

No matter what kind of financial problem you are having, there’s a way out. For a confidential consultation with an experienced debt reduction attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Virtual, after hours, and home visits are available.

Source:

cbsnews.com/news/who-qualifies-for-the-irs-fresh-start-program/