J Thomas Black
Board Certified, Consumer Bankruptcy Law- Texas Board of Legal Specialization

The IRS has a new "Pre-Qualifier" tool that delinquent taxpayers can use to get an idea of how much it would take to settle their IRS tax debts.

An "offer in compromise" or OIC is what the IRS calls a settlement of taxes. With an OIC, a taxpayer can make an offer to the IRS to settle taxes for less than the full amount due, sometimes far less than is due.

How much will the IRS accept to settle? It's not a random amount, a taxpayer cannot just throw out a number, like $1000.00 or $10,000.00.

The amount that the IRS will take to settle delinquent taxes is based on what assets that a taxpayer owns, what their income and living expenses are, and other factors. They can even consider "special circumstances," if there is something special about a taxpayer's situation that would show them that the taxpayer can't pay very much, such as if they are very ill, for example. 

Regarding the amount of the taxpayer's allowable living expenses, a taxpayer just can't put down any old amounts. The IRS has their own idea of what living expenses should be, based on where someone lives and how many are in thier family. And getting the IRS to accept an OIC that may be difficult because it may not be affordable for a particular taxpayer. But it is a lot more affordable then it used to be. Recently, they changed their rules to make it much more affordable to people to settle their tax debts.

But a taxpayer has to be careful making an OIC. If one is submitted, a 20% down payment of the amount offered must be paid, with the offer (unless the taxpayer is very low income). And this amount is not refunded, even if the IRS rejects the offer. If a taxpayer makes an OIC and proposes to pay the offered amount in installments, they they must start paying the 24 monthly installments, which again, are not refunded, even if the IRS does not approve the offer.

And filing an OIC "tolls" or stops the running of the "Collection Statute Expiration Date" or CSED, so the IRS has longer to collect the taxes from the delinquent taxpayer, if the OIC is either rejected, or if the taxpayer later defaults on it. Filing an OIC can also affect when income taxes can become dischargeable in bankruptcy, if the taxpayer is considering doing that in the future, or if they are considering filing bankruptcy because of other debts.

Regarding default, part of an OIC agreement is that the taxpayer must be a "perfect taxpayer" for 5 years after the acceptance of the OIC. They are "on probation" so to speak If they fail to timely file tax returns or fail to timely pay all that they owe for the five year, the OIC can be "defaulted" and cancelled, and the IRS keeps all the money that was paid (the taxpayer gets credit for it, but the IRS adds all the penalties and interest that would otherwise have accrued). Some of my clients are just not good OIC candidates for this reason; they just can't seem to stay current with their tax responsibilities, try as they might.

Also, by filing an OIC, a taxpayer is giving the IRS a "blueprint" or list of everything that they own. So if the OIC is not successful, and the taxpayer cannot work out anything else with them, and the taxpayer doesn't file bankruptcy to stop the IRS collection activiites, well, they know exactly what the taxpayer owns and where it is, making it much easier for them to seize it. The IRS can take (most of) a taxpayer's wages, for example, even here in Texas where wage garnishment is not allowed for most debts.

It is possible for a taxpayer to file an OIC themselves, without help. But as you see above, there is a lot more to it than just filling ouit the forms. If a taxpayer wants help, they should hire an attorney, C.P.A., or an "enrolled agent" that is experienced in these matters. If income taxes are more than 3 years old, they may be dischargeable in bankruptcy, so if a taxpayer wants to know more about that, a bankruptcy attorney would likely be the best choice.

But if a taxpayer wants to get an idea of whether or not they would qualify for an Offer in Compromise, and how much the IRS may want to settle, go the the IRS Pre-Qualifier tool and try it out. For help with IRS problems, call our office at 713-772-8037. There is no charge for your first visit with one of our attorneys.

Please list your comments below. Did you try the IRS pre-qualifier tool? Was it helpful? Was this article helpful? Why or why not?

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