As a CPA in Reno, I am often asked what an offer in compromise is and how it works. There is a lot of misunderstanding about what an offer in compromise is and I thought I would take a second to clear up some of the confusion. The best way I know of to explain an offer in compromise is that it is where you make a deal with the government to settle your tax obligations for less than what you actually owe.
Is This Always An Option?
No. Offers in compromise are not always an option. They are based on your ability to pay. The IRS does not like compromising, because they lose money. They will work with you if you have financial hardships and it is clear that there is no way that you can pay them the amount owed.
Can Be Useful With Medical Issues
Say for instance that you have had medical issues and have lost the ability to earn a living and therefor you owe a lot of money, but have no way to pay it back. The IRS will often wave the interest and other penalties. This is one example of a financial hardship. Anytime you are faced with a financial hardship, it is more likely that the IRS will be willing to work with you.
Can You Pay In 10 Years?
The IRS will base your ability to pay on a ten-year mark. They will have you put together a budget and prove to them that you cannot afford to pay them the amount they are asking for. If your income has dropped dramatically and it is going to level out at this new amount, then you can put together a paying schedule based on your new income.
Pets, Coffee and Other Habits
The IRS is really tough with an offer in compromise. Once they have your budget they will ask you about extra spending and may even tell you that you need to cut your extra expenses so that you can pay them back. It sounds harsh, but I have had an IRS collection officer say that my client cannot have pets or they need to stop their daily coffee runs. If they find extra expenses, they will be less likely to compromise.
Every Case Is Unique and There Are Exceptions
With all the above said, every case is unique. Sometimes there are misunderstandings about your tax situation and by exploring these, your CPA in Reno may be able to prove that you do not owe as much as the IRS is asking for. If you can prove there is a mistake then they will work with you to figure out how much you actually owe.
If you are thinking that you may be able to work out an offer in compromise then you need to talk to an experienced CPA in Reno today.
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