10 Tips for Getting Your Offer Accepted
Make the IRS An Offer They Can’t Refuse! – 10 Tips for Getting Your Offer Accepted
- Don’t Submit a Losing or Frivolous Offer.
We like to say that everyone deserves as many second chances as they need to get where they need to go. But, don’t be greedy. If you have Donald Trump money, you shouldn't be offering a pittance to settle your IRS debt. As a general proposition, if you have assets equal to your IRS debt, an Offer will be a tough sell. It is very important to make a reasonable Offer calculation and not to submit an Offer that is calculated with magical thinking instead of math, or that is clearly destined to fail.
Why? Because the IRS will look at your old Offer when they are reviewing a futuer Installment Agreement or a future Offer. If they think you are playing games, the IRS may view your future efforts to settle your tax debt with skepticism.
On a positive note, there has never been a better time to file an Offer in Compromise! You don’t need to submit a low ball offer. Offers today are 3 times cheaper than they have ever been and are Twice as likely to be accepted than they have ever been.
So, call us and see if you qualify for an Offer and a Fresh Start in your financial life.
- Don’t Submit an Incomplete Offer and Lose Your Down payment.
You do not want to submit an incomplete offer and have it returned. Usually, you will submit a 20% down payment along with your offer. When an Offer is not processed, the IRS keeps that 20% down payment. Don’t let it happen to you!
Here’s a checklist of all requirements in order for your Offer in Compromise to be considered “processable” by the IRS:
· Must not have an open bankruptcy case,
· Must have filed all federal tax returns that you are required to file,
· Must have filed payroll tax returns and made on-time deposits of payroll taxes for the prior two quarters (for business taxpayers),
· Must pay $150 Offer in Compromise application fee, or request a fee waiver,
· Must submit IRS Forms 656, 433-A, and/or 433-B, along with support documentation, and
· Must be current with estimated taxes and/or income tax withholding for the current year.
- Don’t Get an Offer Accepted, Only to Get Your Tax Probation Revoked and to Have the Debt Reinstated!
Don’t forget the terms and conditions of the Offer in Compromise contract!
So you’ve got an accepted Offer in Compromise! Congratulations. You have received one of the greatest gifts of legislative or administrative amnesty available in all of history, from the government of the greatest Country in history. Don’t blow it!
The IRS sets forth all the contractual terms in an Offer in Compromise.
Nothing is too good to be true. And Offers in Compromise are no exception. When you get the benefit, there are some conditions. The conditions are that you have signed up for five (5) years of Tax Probation, with the following conditions:
· Pay the offer amount in the Offer in Compromise – this is an easy one.
· File your tax returns on-time and pay your taxes on-time for the next five (5) years. Be careful, failing to do so will cause revocation so fast your head will spin.
· Let the IRS keep any tax refunds, payments, and credits applied to your tax debts prior to submitting your Offer in Compromise. This is one that sometimes catches taxpayers by surprise but the purpose of this is to make sure that you aren’t getting refunds after the IRS already canceled part of your debt. In most cases, it is a small price to pay, and if you are in the tax range where your Taxable Income is so low that you are getting refunds, then it would have been very strenuous to pay your liability in full, and you should be pleased to offer this small token for the great reward of having so much of your tax debt canceled.
· Let the IRS keep any tax refunds that would have been payable to you during the calendar year that your Offer in Compromise is approved.
If you don’t fulfill the terms of the Offer contract, the IRS can (and probably will) revoke the Offer in Compromise and reinstate the full amount of tax liability. So caveat emptor. Buyer beware. Offerer beware. An Offer in Compromise is not condition free. You need to be very scrupulous for the successive five (5) years to make sure you reap the rewards.
- Don’t Wait for Things to Get Better – Act Now.
This is one of those cases where Rahm Emanuel’s admonition not to let a good crisis go to waste is worth heeding. Offers are cheaper than they have ever been and the acceptance rates are higher than they have ever been. Today’s Offer = Cheap + High Rate of Acceptance. That is a formula you can get behind if you’ve fallen into Tax Hell and want out.
The Fresh Start Initiative discounted the “price” of an acceptable Offer in Compromise by 75%. These changes which went into effect in 2012 have dramatically changed the playing field. But, there is no telling how long this will last. So, act quickly.
The acceptance rate for Offers in Compromise have gone up by about 17% from all time highs in 2010! The IRS is currently struggling to bring in revenue and close the tax gap due to the volatile and weak economic times in which we live. Rates of acceptance are now about 42%, meaning that you have almost a 50/50 chance of getting a “Fresh Start” by submitting an Offer in Compromise. Generally speaking, it has been rare for the acceptance rate to be higher than 25%. You are almost twice as likely to get your Offer in Compromise accepted than ever before.
Under IRS standards you have to pay 1 year’s disposable income for your Offer amount if you agree to pay your accepted offer amount in 5 months or less. If you are going to pay in 6-24 months, then you need to include 2 years of disposable income as your Offer amount. So if your living hand to mouth and the financial picture for the next 1-2 years is a very dreary picture, and it is clear that you won’t be able to full-pay your debt over that time, your odds of having an Offer approved are relatively high. More offers are being approved than ever before. But, it will not last forever. Some of the components of the Fresh Start Initiative will potentially expire in the near future.
- Don’t Double Down on a Losing Hand
As Kenny Rogers says – “Know when to hold ‘em, know when to fold ‘em, know when to walk away, know when to run.” If you’ve gotten behind on your taxes and have accrued a large tax liability, it is time to right your financial ship and start paying. Your odds of success are slim to none if you submit an Offer while you are running up a new tax debt. But, if you just have a few quarters of good behavior, the odds go up significantly.
The key to getting an Offer in Compromise accepted is convincing the IRS staff reviewing your application that you deserve a “Fresh Start.” The quickest way to get your Offer in Compromise rejected is to submit an Offer in Compromise and then, after it is submitted, to fail to file/pay any taxes owed and currently coming due (Income Tax, Quarterly Estimated Payments, Forms 940/941 Employment Tax, Sales and Use Tax, or other taxes).
It is said that you shouldn't try to have your cake and eat it to. Well, the IRS looks at someone who runs up a big tax debt while an Offer is under consideration the way a creditor looks at someone on the verge of bankruptcy who goes out on a shopping spree and maxes out all of their credit cards on luxury items. They view it as bad faith.
Keep in mind that the IRS looks at Quality of Life factors. If someone owes a lot of IRS debt, the IRS figures they should be putting something aside to make an effort to pay some of the debt. If you are driving a $250,000 Masserati and have taken multiple luxury vacations in the last year, the IRS will find that “lifestyle” incompatible with someone who deserves a “Fresh Start.” Maybe you lived beyond your means at a time when your business or career was on a great trajectory, and tried to maintain that lifestyle during a period of financial decline. Ok. But, make an effort to take some common sense steps to downgrade your lifestyle to increase the likelihood of getting your Offer accepted. Sell your sports car and get a more reasonable one. Forego and cancel a scheduled vacation. Cancel your premium cable. Just a few of these kinds of small changes can help you to get out of Tax Hell permanently. Keep in mind, better times are right around the corner for most people experiencing a hardship, but an Offer is a one-time deal. So, do what it takes to put your tax problems behind you and you will be substantially better off in the long run.
If you are trying to right your financial ship and want a Fresh Start, it is helpful to show the IRS that you are taking your financial obligations seriously and working to stay current on all of your obligations.
- Don’t Negotiate in Bad Faith – Low Ball Offers Need Not Apply
All of the publicity about settling your tax debt for “pennies on the dollar” is wishful thinking at best, and patently dishonest. The IRS standard is that they calculate how much they will take in an Offer based on your “ability to pay” and your “Reasonable Collection Potential,” basically, what the IRS can collect. They look at your assets and your future income over 12-24 months.
So, you should be aggressive, but you should not be offensive. If you can pay $10,000 to settle a tax debt of over $100,000, don’t offer $5,000 – offer what you are able to pay. Far better to put your best foot forward and do your level best, and have your Offer accepted.
IRS Appeals Officers and IRS Offer Examiners are very smart. They will not allow you to pull the wool over their eyes. They know a “low ball” Offer when they see one. And they will be offended. Make sure you can make your Offer with a straight face, and you will fare far better. IRS personnel are in the business of government collections to protect the good taxpayers from shouldering the burden of the bad ones. They consider themselves officers who police the financial world, the same way police officers police street crime. They are serious people with a serious oath to uphold. But, they are not in government service to prey on you or make things harder. IRS representatives will be happy to grant you a reasonable Offer if you put your best foot forward.
- Don’t Do it Yourself
While I make this point emphatically, I have to preface it with a caveat. Most people should not submit an Offer in Compromise on their own. The IRS procedures and rules are sufficiently complex that it is better to utilize a professional if you do not fully understand what you are dealing with. But, the IRS personnel are very helpful and are trying very hard to improve their services to where they can give you the necessary guidance to “Do it Yourself.” They are not there yet. More to the point, the IRS is adversarial to you – the delinquent taxpayer.
If you happen to have a financial background and experience dealing with the IRS, or for example, you are a 20-year veteran of the IRS, you may be in a position to make an Offer yourself. On the flip side, if your total debt is $10,000 or $20,000, it may not be worth the fees to hire a professional, and the IRS may not be incentivized to scrutinize your paperwork too critically. So, in these scenarios, you may want to try to “Do it Yourself.” For everyone else, it is far better to get the help of a qualified professional.
What if you are a busy businessperson with a family and many constraints on your time? What if you owe $100K to $200K in taxes and the stress of waiting for the other shoe to drop is keeping you up at night? What if you have no earthly idea how to propose an Offer to the IRS? Well, my friend, if that is you, you should really enlist the help of a professional.
You would not try to do open heart surgery on yourself if you are not a Cardiothoracic Surgeon by trade. And even then, I’d recommend getting another Doctor.
Legal and Tax problems are no different. Dealing with them yourself is twice as stressful. As the example illustrates, it may even be impossible. The old idiom is that a man that represents himself in Court has a “fool for a client.” Why? Because it is hard to be emotionally detached enough to represent yourself. It is just too stressful.
And secondary to that is the fact that you are not likely to do as good of a job as a professional if you are not an Offer expert. So do the right thing and hunker down and get the help you need. In the long run, it will be well worth the cost.
- Don’t Double Dip!
A lot of businesspeople say, I didn't make much money because I had a lot of deductions. But some of those deductions were for their car, for their health insurance, for meals and entertainment, for life insurance, and for other items that the IRS counts as “personal deductions” on Forms 433-A and Form 656.
If you have taken these deductions on Schedule C of your Tax Return for the prior tax year, you cannot also take them on your submissions with your Offer to bring down the Offer amount. Trying to Double Dip will offend the Offer Examiner at the IRS reviewing your Offer, because this is something they specifically look for.
- Don’t be Rude
A lot of taxpayers, in putting together their Offer want to bring up every harassing call, every wage or bank account levy, and every mixed message that they felt they got from IRS personnel, who have caused the taxpayer a great deal of terror. Let me let you in on a secret. Keep this to yourself.
Understand that the IRS has to go after delinquent tax debts. They have to use all the means at their disposal to collect these back taxes. Some IRS personnel are better than others. But, the last thing you want to do when you are submitting your Offer for consideration is to disparage the colleagues of the person whose hands your Offer is in, or to disparage the organization that person is proud to work for.
When submitting an Offer and asking for favorable treatment from the IRS, treat them with due respect and deference. It will go a long way.
- Don’t Stop the Clock When It is Running Out
If you have actually been paying your taxes timely for years, but have some lingering old tax debts, chances are you’ve been through the ringer with the IRS. Unexpected bank levies that clear out your bank account happen every so often. Wage garnishments come in from time to time. Sometimes the IRS Revenue Officer on your case even sends your clients nasty levies saying they should send payment to the IRS and not you! Ouch.
Well, before submitting an Offer, one thing you should check is whether the time for the IRS to collect on your old liabilities is about to run out. The IRS has 10 years to collect on an assessed balance. You should not submit an Offer in year 9, because every time you submit an Offer you toll the statute on collections while the Offer is under consideration. So always check the Statute of Limitations before submitting an Offer in Compromise.