Suppose a taxpayer owes the Internal Revenue Service $40,000, but cannot pay the debt in full due to financial circumstances. While no person is entitled to decrease the amount of his or her income tax, the Internal Revenue Code 7122 states that one can make an offer to the federal government, which should undergo consideration and evaluation.
If you owe the IRS, call tax attorney Jin Kim for a free consultation. She can help you better understand your tax resolution options, including whether you qualify for an offer in compromise (OIC). To receive a free consultation call her office at (916) 299-9913.
Qualifying for An Offer In Compromise
Before your offer in compromise can be considered, the IRS has set conditions that must be present if a taxpayer wants to submit an OIC.
Doubt As To Collectibility
First, the most common ground is doubt as to collectibility or the existence of doubt whether the agency can collect the debt in full now or even in the future.
Effective Tax Administration
If there are special circumstances that could result in economic hardship for the taxpayer, then this can fall under the effective tax administration ground.
Doubt As To Liability
Lastly, the doubt as to liability—which is very rare—happens when there is uncertainty if the person owes the amount legally. It is completed through IRS Form 656-L.
To find out if you qualify for filing an OIC, take the Offer In Compromise pre-qualifier test that the IRS uses as a guide to determine if you can pay your taxes. Should you fail the short exam, you can still pursue filing an OIC and talk to a Sacramento Law Group tax lawyer about your financial situation.
Filing An Offer In Compromise
IRS Form 656 Booklet, available on the IRS website, contains the information that the agency might ask of you, so reviewing it beforehand would help you navigate the process of filing an OIC. The following is a quick guide on how to go about with your Form 433-A, which is the document you will submit for the OIC filing.
The “Collection Information Statement for Wage Earners and Self-Employed Individuals,” or the IRS Form 433-A, is the document used by individuals or even unemployed and retired people to file their OICs. On the other hand, Form 433-B, or the “Collection Information Statement for Businesses” is used by owners of small businesses.
When preparing your application, remember that the IRS will put a premium on the reasonable collection potential, which is the minimum amount it expects to get from you based on your ability to pay every month for two years, depending on your monthly income and assets.
The computation of your offer should be equal to your asset’s net realizable value added to the extra income you have after deducting your monthly expenses. Then multiply the amount by 12 or 24 based on the payment period you prefer.
The IRS provides the instruction for computation on Form 433-A, and they strictly adhere to it, so do not bother offering a greater amount because this can hinder your purpose of paying a lesser liability.