Do you owe the IRS more money than you can pay? Are you at risk of a tax lien? Would a fresh start sound nice? Well, the IRS literally offers a “Fresh Start program” to settle your IRS debt through a tax forgiveness program. If this sounds too good to be true, your instincts may be right, as there are several pitfalls you should be aware of before entering into an agreement with the IRS.
One of the popular options under the Fresh Start program is an Offer in Compromise, also referred to as an OIC, in which the IRS accepts a settlement offer that is less than what you owe. The process of reaching an OIC however, is not automatic, and requires an application and acceptance. Here are some elements that may give you pause:
- The application for an OIC requires a full disclosure of your finances and assets, far beyond what you disclose when you file your taxes. If you value your privacy, an OIC throws that out the window and also gives the IRS a complete picture of where to issue liens and levies if they decline your application or if you fail to pay your agreed-to tax obligation.
- The IRS consideration of your application and investigation into your assets can last about a year, then add up to a two year payment plan. So an OIC is by no means a quick process.
- Reaching an OIC is not a guarantee, and a significant percentage of applications are rejected by the IRS. So you may have just shown the IRS everything, but they still say no.
- If you miss a single payment, you are sent back into collections, and now they know where all of your assets and income accounts are.
- The statute of limitations for the IRS to collect from you is suspended pending your OIC, which is significant if the statute of limitations on your tax obligation is close to running out.
- You are placed on a five year probationary period, and failure to fully comply with filing yearly tax returns and making payments can revoke the OIC agreement and result in further IRS action.
Again, an OIC may be an option of last resort for you, as other alternatives may include finding a way to pay the full amount, allowing the statute of limitations to expire, or declaring bankruptcy. A knowledgeable tax attorney can advise you on your best course of action. With two decades of legal experience, a Master of Law Degree (LLM) in Taxation, and a license to practice in the United States Tax Court, I have the expertise to help you resolve your tax dilemma. Contact The Law Offices of Robert S. Thomas today by telephone at 847-392-5893 or visit our website to set up a consultation.