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Today we will review the ins and outs of qualifying for an Offer in Compromise under the IRS.
Did you know? The IRS has a pre-qualifier tool you can use to see if you may fit the guidelines for the offer in compromise program? You can find the link on our links page or visit IRS.gov. I caution you to use accurate figures when filling out the answers otherwise you may get an inaccurate response. If you do get a negative response, it does not necessarily mean you couldn’t qualify. I would suggest getting with a tax professional who has experience in submitting offers to the IRS. Let’s dive in!
The first thing you need to do is go over your budget. Everything the IRS does for any of their programs is solely based on income, debt, and assets in most cases.
Make a list of the gross income subtract out your monthly expenses & taxes (state/federal). Keep in mind the IRS will use the National Standards when reviewing your offer. There are in certain circumstances where the IRS may allow you to use a higher figure than the national standards but be prepared to have back up documentation to support your claim. Next let’s look at your assets. Assets to the IRS are basically viewed as anything you can liquate to pay them back. These include automobiles, real estate, investment such as retirement account, cash, bank accounts, jewelry, stocks, bonds etc. if If you have substantial assets totaling more than what you owe the IRS. You most likely may not be a good candidate to submit an offer.
Again, if you have assets, it does not necessarily mean you may not qualify but I would get the advice of a tax consultant, like me :), before going ahead and submitting an offer.
After you listed out your monthly income, and monthly debts you pay. You will want to know what you have left over each month. This is called disposable income. So, if you have let’s say $200.00 left over each month, they may determine you have enough money to enter into a installment plan instead. However, again each taxpayer’s case may be different and there are other things the IRS considers. It would make this article never ending and really, really, really, long to go over everything they review and how they review it. Remember the goal of the IRS as a collection agency is to get paid before the tax debt expires. First thing and foremost and the most effective way for them to do this is way of the installment plan. If you qualify for one you will NOT be a good candidate for an offer, after all they don’t really want to settle on the tax debt.
As I’ve stated before the best thing you can do is know how to manage your IRS debt, Find out when your debt expires and know how to budget your finances. At the end of the day, it isn’t worth ignoring those letters and being at risk of wage garnishments, social security/pension garnishments and bank levies. File your taxes on time and make sure you are having the right withholding taken out. If you are self employed make those estimated tax payments! If you don't pay in taxes guess what you are also not contributing to your social security account. :(
We hope this sheds some light on the process and what you need to do. If you decide to try to submit on your own, I would still use a tax professional to guide you through the process. Interested in learning more?
Give me a call. I would gladly answer any questions you may have. I am best reached via email kim@pegasustaxpros.com text: 904-257-3145 direct: 904-374-8960. Fill out the contact help me form below and I'll get in touch.
To learn more about how we can help you pre-qualify click here.
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