Understanding the labyrinthine world of IRS Offer in Compromise (OIC) filings can be an intimidating endeavor, even for a tax resolution attorney like myself. I’ve seen firsthand the complexities and challenges involved in these filings. It’s not just about the paperwork; it’s about understanding a formula that can seem cryptic to the untrained eye.
At the outset, let me clarify that my intention isn’t to steer people away from handling their own tax issues for the sake of business. Rather, it’s about being honest about the steep learning curve required to get an OIC accepted by the IRS. The process involves much more than just filling out forms; it’s an intricate dance of timing, documentation, and a deep understanding of IRS procedures.
The IRS Form 656, the official form for an OIC, can indeed be overwhelming. The document, alongside the exhaustive financial statement required (Form 433-A OIC), demands precision and accuracy. The IRS evaluates every aspect of your financial history, and any discrepancies can derail your chances of approval. The meticulous level of documentation necessary wears many people out before they even submit their application.
Understanding the formula the IRS uses to evaluate Offers in Compromise is crucial. It’s not merely about proving financial hardship; it’s about matching your financial situation to the IRS’s strict criteria. Many individuals assume that if they’ve faced personal hardships, the IRS will take these into account. Unfortunately, the narrative or emotional burden doesn’t weigh into the IRS’s decision-making process. It’s strictly a numbers game.
The IRS uses your financial disclosures to determine your ability to pay. They’ll look at your income, assets, liabilities, and monthly expenses with a fine-tooth comb, and they will apply a formula to calculate an acceptable offer. For instance, if you have $100 left over per month and five years left on the statute, they will multiply that to reach a figure that influences your offer acceptance. It’s a straightforward yet unforgiving formula.
Timing your application is equally important. An offer is most likely to be accepted when your financials are at their lowest point. Submitting an offer post-pay raise or financial improvement is typically not advantageous. The IRS generally reviews six months of financial activity before your application, so planning is essential.
There are also baseline requirements before submitting an offer. All your tax returns must be filed, and you should be current on estimated tax payments. Failing to meet these prerequisites could result in outright rejection.
While many people do not have the financial means to employ a professional tax resolution service, it’s crucial to be realistic about your capabilities and limitations. It’s not uncommon for individuals to attempt filing on their own or to seek the services of less scrupulous firms that promise results without delivering. Unfortunately, few self-filed offers are accepted due to the stringent review process the IRS employs.
Moreover, the IRS has access to robust systems and databases to cross-verify your information, ensuring accuracy within your declarations. They will conduct a thorough examination of your financial claims, making it critical to provide accurate and truthful information.
In conclusion, while it’s entirely possible to file an Offer in Compromise without professional help, the reality is that the process is daunting. The key is preparation and understanding the IRS’s methodology. If you decide to proceed on your own, ensure your financial documentation is thorough, accurate, and reflects your current circumstances as disadvantageously as possible from a financial perspective.
Whether you choose to navigate this process yourself or seek professional assistance, knowledge and preparation are your greatest allies. If the financial burden of professional help is prohibitive, at least consider seeking a consultation to understand whether you’re a viable candidate for an Offer in Compromise. Remember, it’s not just about financial hardship; it’s about matching the numbers to the IRS’s expectations.
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