Offer in Compromise

An Offer in Compromise is aimed at collecting as much taxes as a taxpayer is reasonably able to pay immediately rather than waste more time and money in attempting to retrieve the full tax amount and potentially be unsuccessful at it. This program allows anyone who owes back taxes to the IRS to offer a compromise, or an amount that they can pay right now that will wipe the slate clean and get you back on the road to financial solvency. The Offer in Compromise is granted on an individual merit basis. Therefore, someone else's successful application may not be typical of your application.

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Very often when you make an application for an Offer in Compromise, you will be confronted with various problems. Face it, the IRS does not like to accept less taxes than what they are due. But for you, knowing the potential Offer in Compromise problems will help you to avoid them. In fact, knowing these problems will also help you determine whether you qualify for an Offer in Compromise in the first place.

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If a taxpayer is unable to pay his or her tax liability, and collection activity would create an economic hardship the IRS will consider placing the account in a “hardship” or currently not collectible status. In considering a taxpayer’s account for “hardship” status the IRS will compare the taxpayer’s monthly gross income against what they call “allowable” expenses. IRS monthly allowable expenses are national averages for food, clothing, miscellaneous expenses, housing, transportation, medical expenses and insurance, as well as proper tax withholding and payments. These “allowable” amounts vary depending on household size and local standards as well.

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Some of the bigger "national" Offer in Compromise companies try to sell everyone an Offer in Compromise. The truth is that not everyone qualifies. There are strict requirements that come into play to determine whether a taxpayer qualifies to "settle for less" than what the IRS says they currently owe.

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In this final post on the July 23rd article in the Wall Street Journal online edition we're going to talk about taxpayer misconceptions in negotiating a resolution to tax debt with the IRS. A few years ago the IRS hired an advertising firm to reshape its image with the American public. In large part this effort was a success. The IRS with the aid of Madison Avenue was able to convince a portion of the American taxpaying public that it was "friendlier" and "easy" to do business with. In some ways this is true. The IRS has one of most consistently lauded websites on the internet, most returns can be filed and taxes paid electronically, and refunds can be direct deposited. There is no doubt that the "business" of the IRS has become easier and more efficient. If you find yourself in the unenviable position of having a tax problem, however, it only takes one phone call to the number on your computer generated notice to discover that the "friendlier" IRS is a thing of the past (if not a straight up urban legend).


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