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OFFER IN COMPROMISE: SETTLING FOR PENNIES ON THE DOLLAR

This is a famous slogan created by a very slick marketing company. The reality is that you can settle for pennies on the dollar, but the important question is, will you settle for pennies on the dollar?

The fact is that thousands of people every year settle their unpaid taxes for a fraction of what they owe, but each case is judged on an individual basis and primarily upon the taxpayer’s ability to pay. There is no law that says the IRS must settle with you. It’s up to their discretion.

The first factor is to determine if you qualify for an offer in compromise, also known as an OIC. If an offer is properly submitted, the IRS is required to process it and give it a fair look. In fact, if your offer is rejected, you can appeal it to the IRS Appeals office.

Filing an offer is a very formal process. Keep in mind the IRS is a very big bureaucracy with 400,000 employees so you can’t simply call them up and strike a deal. In fact, the process is so technical, that’s why people hire professionals. I’m sure there are a few folks out there who have done it on their own and made it work, but I have never come across them.

To begin the process, you must complete IRS Form 656 which, on its face, is pretty simple. Actually, it’s deceptively simple because it’s all of the additional information you must submit with the form that makes it more complicated.

In addition to Form 656, if you are an individual, you must also complete Form 433A. This is essentially a personal financial statement. Again, it’s still not an extremely difficult form, but it’s more complex than the 656 and this is where people start to get tripped up because if you do not complete this form properly, your offer will be rejected or not processed at all.

Then there are questions about whether or not you are married or living with someone. Even if you owe the debt alone and your spouse does not, the IRS will still want financial information about your spouse. If you are living with a significant other who does not have a tax bill, the IRS will probably want financial information for them as well.

Completing Form 656 and 433A is the beginning. Then you will need to supply the Internal Revenue Service with a great deal of written documentation to prove what you are saying in those forms is true. Most of this is financial. In our office we take it a step further. We include information that you might consider a story – in other words, telling the IRS how you fell behind in your taxes and why you are deserving of a settlement. When I call it a “story,” I don’t mean to be irreverent; I think of it as some type of persuasive argument because, ultimately, your documentation and your story will be reviewed by an offer specialist, and we are trying to convince that person that a settlement is fair for the government as well as you.

Finally, if you have any unusual circumstances, you will want to include information on those as well. I have submitted things like x-rays, MRI scans, and medical diagnoses to help my client obtain a settlement.