When you owe the IRS more money than you can afford to pay, it can feel overwhelming. There is a solution to every tax problem, and often times, an offer in compromise (OIC) is one to consider. An offer in compromise is a settlement with the IRS. In most cases, an offer is made because there is doubt that the total amount owed the IRS can be paid. In these types of OIC’s, the IRS essentially considers what you have, what you make, and what you spend. If after doing so, they determine that the settlement amount offered is more than they could collect themselves, a settlement is possible.
If you live pay check to pay check and don’t live extravagantly, the numbers may show that you are a good candidate for an offer in compromise. The IRS compares what you make to what you spend, and it considers the amount of money left over at the end of each month. However, they don’t allow every expense when making this calculation. There are real life expenses that the IRS doesn’t allow in a budget under ordinary circumstances, and this can feel unfair. For example, the IRS generally doesn’t allow private school tuition. They also have limits on what they will allow for a car payment. If you have these kind of expenses, it may appear that you can afford to pay more per month to the IRS than your obligations permit.
The good news is that in the case of an offer in compromise, you don’t have to figure out how to send the same dollar two places. The amounts allowed are for calculation purposes, and they determine the total amount the IRS thinks you can afford to pay in a lump sum settlement. The same is true when evaluating your assets’ values in the what you have part of the equation. I’ll discuss this in a later post.
Attorney Brookes provides many clients an evaluation of their circumstances and her opinion of whether they are a good candidate for an IRS offer in compromise. It allows them to make an informed decision about whether or not to make an OIC to the IRS, and, if so, the amount to offer. Very often, she does so for a flat fee.