Every year, you take great pains to ensure that you file your taxes correctly while receiving the maximum deductions possible. Sometimes, you can’t pay your full tax bill.
The Internal Revenue Service (IRS) has an effective set of tools at its disposal to recoup unpaid taxes. It’s the only entity that can put a lien on your business or home and take money from your bank accounts without getting a court order first.
When people owe taxes, they try to work with the IRS to settle the debt without extreme measures. Some people get an Offer in Compromise.
It’s important to know the Offer in Compromise fees are going up in 2020. The idea of increasing these fees has been around for a while, but the final fees have just recently been approved. If you aren’t familiar with an Offer in Compromise, here are some essentials that you need to know:
What Is an Offer in Compromise?
With an Offer in Compromise, you can settle your debt to the IRS by paying less than what you currently owe them.
For instance, you owe the IRS $10,000. You ask for and receive an Offer in Compromise, and it’s approved. You might end up paying only $8,000 of the original amount owed. This is a good way to settle your tax burden without going into debt doing it.
The IRS looks at several factors before approving an Offer in Compromise, including:
- Asset equity
- Ability to pay
The IRS looks at how much the individual or company owes in taxes, and how much income they have versus living expenses to determine the amount that you might be able to realistically pay without becoming insolvent.
Qualifications for an Offer in Compromise
There are a variety of other ways to pay down your tax debt. You may want to explore these options before requesting an Offer in Compromise. There are very specific eligibility requirements for an Offer in Compromise, such as:
- You must have filed all of your required tax returns,
- You need to have made at least one required estimated payment.
- You can’t currently have an open bankruptcy.
If you file for an Offer in Compromise without meeting the requirements, the IRS will return the application fee but won’t return any initial payments. It will apply that payment to the amount you owe.
You can request to pay your Offer in Compromise in one lump sum payment. With a lump-sum payment, you’ll send in 20 percent of the amount you’re offering to pay with the application and pay the balance in no more than five installments.
The other option is to pay by periodic payments. You’ll send the first payment in with the application. You’ll continue to make monthly payments until the full amount is paid.
What Happens After You File for an Offer in Compromise?
After you fill out all of your paperwork, collect any documents, arrange payment and fees, and submit it to the IRS, you’re going to have to wait a while before receiving a response. There are some expectations you should have during this period, including:
- The non-refundable payments and fees are applied to your current tax debt.
- You must make all the payments associated with your offer.
- If two years pass from your IRS receipt date without a decision, your Offer in Compromise is automatically accepted.
- It’s possible that a Notice of Federal Tax Lien could be filed.
- All other collection activities should cease.
- You don’t need to make payments on any existing installment agreements.
- You can expect the extension of the legal assessment and collection period.
What the IRS Expects of You After You’re Approved for the Offer in Compromise Program
Once you’re approved, you’re expected to meet certain expectations to stay in the program. These expectations include:
- It’s up to you to meet all Offer Terms listed in Section 7 of Form 656. This includes filing all future tax returns on time and making your payments on time.
- The public can review certain parts of your offer by requesting a copy of a public inspection file.
- In the calendar year that your offer is accepted, any refunds will apply to your tax debt.
- Any tax liens in place will not be released until after you complete the terms of your agreement.
What to Do If You Aren’t Approved for the Offer in Compromise Program
If something happened, and you weren’t approved, you have 30 days to file a dispute. You need to use Form 13711: Request for Appeal of Offer in Compromise to file the appeal.
What Is New With the Offer in Compromise Program?
The tax laws are constantly changing. The amounts you owe, deductions you can take, and the fees for various programs are almost always one Congressional vote away from changing. In 2020, the Offer in Compromise user fee is changing.
In the past, the application fee was $186, and it’s increasing to $205. This is roughly a 10 percent increase in the fee. However, it is considerably less than the originally discussed increase to $300. The IRS also expanded its definition of low-income taxpayers who are exempt from the various user fees.
Common user fees that are affected include:
- The Offer in Compromise program fee
- Historic Easement: Related to charitable deductions for historical district easements. You can’t take this deduction without paying the fee.
- Income Verification Express Service (IVES)
- Form 8802, Application for United States Residency Certification
Who Does the Offer in Compromise Fee Increase Affect?
The increased user fees are going to affect everyone filing for relief using the Offer in Compromise program. However, low-income taxpayers may find these new rules a benefit as it extended who can be considered as low-income for fee payment purposes.
If you’re considering asking for an Offer in Compromise to make the amount you owe in taxes more manageable, you don’t want to go it alone. You need someone in your corner. Silver Tax Group gets fast action and proven results. When you need assistance, contact us to speak to a tax attorney who understands the Offer in Compromise program.