Taxation & Estate Planning

Offer in compromise rejected and want to try another one?

By howardlevy

The offer in compromise program is the best known way to solve an IRS problem.  The compromise program is so popular that I often see clients who have submitted multiple offers, each one having been rejected by the IRS.

In fact, a 2006 report by the Government Accountability Office found that 40% of submitted compromises were repeat offers.  That is a statistic I advise you avoid being part of.

Submitting multiple offers is rarely the solution to ending your IRS troubles.  Unless there is something very different in your circumstances, multiple attempts to compromise will likely only add to your IRS frustration.  If the IRS said no the first time, is your case strong enough to get them to agree to a settlement a second time or third time around?

But did you know that every time you submit an offer in compromise, you extend the 10 year timeframe the IRS has collect unpaid taxes?

I see clients who still have the IRS coming after them even though they have owed the IRS for more than 10 years.  They should be done, but they are not because of the rejected offers they submitted over the years. They unknowingly extended their problem – and the statute of limitations on collection – rather than solving it.

Do your research before submitting an offer in compromise.  Make sure the offer has a legitimate chance for acceptance.  Know how your  living expenses stack up to the IRS standard allowances. Understand how the IRS will look at your cash flow and asset values.  And if your offer is accepted, can you raise the settlement funds and pay it to the IRS?

Know about bankruptcy as an alternative to an offer in compromise.  Learn whether you can use the statute of limitations on collection to your benefit by being uncollectible.  Consider whether an installment agreement is better for you than an offer in compromise – making payments does not add time to the collection statute.

An offer in compromise is not the only way to handle an IRS problem – it is just the best promoted.  The IRS compromise program is viable for the right candidate, but it is not an open door policy.  There are consequences to just plunging in blindly with an offer in compromise. Before you submit an offer, know what you are getting into and make an informed decision as to all of your options, not just one.

Full post as published by IRS and the Law on September 06, 2010 (boomark / email).