If you have having difficulty paying your taxes, then an Offer in Compromise probably sounds like a pretty good deal – you can submit a few forms to the IRS, and before you know it your tax liability will be reduced substantially. That said, depending upon your financial situation, settling with the IRS through an Offer in Compromise may be second-best to a number of other options that you may want to consider.
First, the IRS requirements for accepting Offers in Compromise are fairly stringent, and require you to have a very low monthly income and basically no assets whatsoever. Thus, you may end up wasting time and money on trying to settling with the IRS when that effort could have been applied toward a better method of resolving your tax liability.
Additionally, it is important to keep in mind that the IRS cannot collect taxes from you forever; the Collection Statute Expiration Date (CSED) prevents the IRS from collecting taxes from you after 10 years. While that might be great news for some people, the IRS’ consideration of an Offer in Compromise “tolls” the CSED, basically freezing it in place while your submission is reviewed. In other words, if you have an older liability, it might be a bad idea pursue an Offer in Compromise because the CESD is about to expire. Finally, if you do successfully obtain an Offer in Compromise, you will need to be perfectly tax compliant for the next five years.
Of course, there are upsides to pursuing an Offer in Compromise as well. Aside from the most obvious of these—that the process has the potential to substantially reduce your tax liability to levels consistent with your financial ability to pay—an Offer in Compromise will put the collection activities of other creditors on hold. That said, ongoing collection activities such as garnishment of wages that began before the filing of the Offer in Compromise may continue after the filing.
When considering all of this, you should keep in mind that you can only weigh the pros and cons of Offers in Compromise in the context of the other options available to you: if you don’t pursue and Offer in Compromise, what will you do instead?
Vying for currently non-collectible status will allow you to be taken out of collections without fear of levy or garnishment, and you will not have to pay down your liability. However, the federal tax lien may be filed against you at any time, most likely the moment you have enough money to satisfy the original tax obligation, and frequent reviews of your uncollectible status might result in your removal from that status at any time.
If you have any questions or if we can further assist you, please contact our San Diego Offer in Compromise attorneys.
For more information, please see:
- More about Offer in Compromises
- The Offer in Compromise Process
- An Overview of an Offer in Compromise
- Eligibility Requirements
- Pros and Cons of an Offer in Compromise
- How the IRS Evaluates an Offer in Compromise
- Why Retain RJS Law for your Offer in Compromise?
- Offers in Compromise and Dissipated Assets
- Offer in Compromise Alternatives
- National Tax Agencies