The recent rule changes brought out under the IRS’ fresh start program has allowed thousands of Americans to now be eligible for tax relief where before they wouldn’t even qualify for a settlement. So, how does the program work?
What is an Offer in Compromise?
The Offer in Compromise is a program that allows people to settle their tax debt for less than what they actually owe. There are two main type of offer settlements 1) Doubt to Collectability and 2) Doubt to Liability. While Doubt to Liability seems like an obvious choice for many, the hard truth is that most people that owe tax debt, truly do owe the tax debt, but just struggle with paying that debt off. Therefore, the fresh start program implemented by the IRS is focused on the Doubt to Collectible offer in compromise.
What Amount Can I Settle For?
Doubt to Collectability can mean a lot of things. There are hundreds of court cases, legislation, and directives that build the definitions to that term. However, it can be simplified into a two part test.
Test 1) Given the disposable income per month, if the taxpayer paid that amount per month every month until the tax debt expired, would the debt be paid in full?
Test 2) If the amount would not be paid in full, then an equation is used:
DISPOSABLE MONTHLY INCOME (MULTIPLIER) + AVAILABLE EQUITY IN ASSETS =
OFFER SETTLMENT AMOUNT.
Tax Debt settlements are very different from other types of settlements where the debtor cannot just offer the creditor money as a percentage of the debt and expect success. If the two tests fail or show a settlement amount higher than the actual debt, then the Offer program is not right for you.
How to Qualify
1. Taxpayer is compliant with tax returns for last six years.
2. Taxpayer is compliant with tax withholding and/or quarterly estimated tax deposit requirements.
3. Taxpayer is protected from collection actions.
Why would the IRS do this?
The IRS would rather ensure that you are a good taxpayer from this point forward than destroy your life because of some past mistakes. They are willing to forgive your old debt in exchange for future compliance and a promise to not owe taxes again for at least the next five years.
Do I qualify?
Some companies will charge you to see if you qualify, other companies will tell you that you qualify without actually gathering enough information to do the two part test. Contact us at Tax Debt Services at 619-352-4188 and we can determine if you qualify for free.
If I do qualify, why would I need to hire a professional?
Criminal court cases, lawsuits, corporate mergers, vehicle repair, bankruptcies are all examples of situations where anyone can do things by themselves. People can represent themselves in court, repair their own engines, and file the lengthy paperwork of bankruptcies by themselves. How does this normally work out for the person who isn’t a professional? Normally not so swell.
Hire a company that has professionals who do this for a living. This is tax debt and should be thought of as a serious and urgent concern. Why would you not want to get it done right?