Five Mistakes The IRS Bets You'll Make When Settling Your Tax Debt

You’ve been lugging around your IRS nightmare for awhile now. But, you don’t really want it to end, do you?  Surely not.

Your IRS debt has done such an effective job ruining your relationships with your wife and kids, your emotional well-being and your health, why let it end?

I mean, you tried that offer once before on your own, and you still firmly believe it’s a waste of money to hire a tax professional to help. You still believe that don’t you? You may have lost your 20% non-refundable IRS down-payment when your Offer was denied, and now you feel you can’t afford a tax professional. Let’s make sure that your IRS Offer in Compromise gets denied again, shall we? Or better yet … let’s never submit one at all!

* Let’s get this out of the way up front, so nobody thinks I’m totally serious (or seriously deranged) in this article. I’m not! But, sometimes absurdity and sarcasm are effective teachers in driving home a point. I don’t think taxpayers set out to wreck their IRS Offers in Compromise. The IRS isn’t betting against you, but they know that the chances are good that you may trip up in the process and beyond. I’ve been representing taxpayers from all walks of life in Offers in Compromise proceedings before the IRS a long time. I know what works and what doesn’t. I see consistent mistakes and mindsets taxpayers make about submitting an Offer in Compromise. Those mistakes almost guarantee failure.

So, let’s get them out in the open, and avoid them. So, pretend for a few moments that it’s opposite day and enjoy this exercise! Or don’t enjoy it, I mean...

#1. Go it alone.

Why spend money on a professional to deal with the IRS so you don’t have to, when you could just take that money and throw it haphazardly at some of the debt to keep the wolves at bay just one more day? I mean, come on, the IRS Offer in Compromise form itself (Form 656) is only 6 pages long! How hard can it be?

You have unlimited time to research the Internal Revenue Manual that governs IRS Offers in Compromise (and every other IRS collection matter, including Appeals processes). You have endless patience to apply those rules to your unique situation. Most importantly, you have the stamina and the persistence it takes to see an Offer denial all the way up the IRS chain of command and on to appeals, don’t you? You got yourself into this IRS mess. It’s your moral obligation to get yourself out, without assistance! Stay isolated. You’re a lone wolf!

#2 Keep telling yourself that the IRS Offer in Compromise process is arbitrary.

You’ve done the hours of research now, and you know that there’s an IRS formula for getting an Offer in Compromise approved. It’s pretty straightforward: the IRS wants the equity in any asset they could theoretically seize, plus 12 or 24 months of net disposable income, if your “reasonable collection potential” is less than the amount of taxes, including penalties and interest.

What’s hard about that? Surely, you already know the collection limitations date for all years at issue and, therefore, what your reasonable collection potential is, right?

You still with me? Good. Ignore the Offer in Compromise formula above and abandon it forever. This is imperative if you are going to sabotage the Offer. Just throw out a low number with no support and see what happens. You can always go up from there, right? The IRS has a bunch of powerful collection tools, like seizure, bank levies and wage garnishments. But, they won’t use it on you!

#3 Fail to plan, and plan to fail.

The government runs on massive spending and inefficiency. They won’t even know what hit ‘em when you offer up that random low number Grandma said she would gift you to settle your big tax bill, you know?

Besides, you don’t want to change your lifestyle. It would simply be too painful for your spouse to quit that income stream that has just been going to child care and puts you in a higher tax bracket.

It’s too inconvenient to sell your home (the one with the high house payment that exceeds the amount the IRS allows in your geographic area).

It’s too much trouble to strategically pay some medical bills, future house payments, future taxes in advance to take down your disposable income for the 3 months prior to submitting the offer. You owe the State too and the IRS will allow you to deplete your monthly income to fund a formal installment agreement with the State, but hey, the State’s not doing anything to you right now. Those things could legitimately bring down your net disposable income and IRS collection potential. No, my friend, that might get your offer approved, and we can’t have that! That Federal Tax Lien that’s been alive longer than some of your kids will then go away 30 days after an approved offer is paid. Talk about a sad day...

#4 Keep hoping the IRS won’t notice you haven’t paid this year’s taxes.

Offers in Compromise take a llllllong time to process. Translation, what could go wrong while the Offer is pending? Most Offers take at least 6 months to process because there is a long line of taxpayers who submit them. The IRS must make a determination within 24 months or the offer is automatically approved.

That tells us what? Some offer determinations are going to take up to 2 years, right? Most don’t, but surely more stuff that got you into this mess in the first place won’t happen--you know, like more failure to file and/or pay taxes as they become due?

You must be in filing/paying compliance for the year-to-date of taxes due, when your offer comes up for consideration. When the IRS offer examiner dusts off the file to examine it, the first thing they do is check compliance. An Offer may be returned (meaning you can’t appeal it) if on-going taxes aren’t filed and paid. So, make their job easy, and keep up the compliance problems while the offer is pending.

#5 Default to complacency mode.

So, you tried to sabotage your Offer, but maybe it got approved anyway (for a lot less savings than you thought)? Well, the microscope is off now and you can go back to life as usual, right?

You’ve heard that any hiccups in filing or paying for 5 years after the Offer is approved allows the IRS to come after you for ALL the forgiven taxes that were compromised, including penalties and interest. But, why let a tax professional do your bookkeeping, prepare your returns and keep you on track with quarterly reminders? The IRS won’t really default your Offer if you’re late on a quarterly 4 or 5 years after they approved your Offer, will they?

***

Whew, you have no idea how hard it is to keep up that level of sarcasm for so long!

Let’s get serious, shall we?

Offers in Compromise are tough to get and maintain for 5 years. It’s heartbreaking to see taxpayers struggle through this process or fail to pay taxes in year 5 following a successful Offer which causes the forgiven taxes, penalties and interest to come back on their bill. So, let’s learn from others’ mistakes.

When you’ve finally had enough of your IRS problem, it’s time to get some professional assistance and get an Offer in Compromise. That may mean getting some unfiled returns filed, because full filing compliance is always required. It is possible to plan out your income and expenses for 3 months prior to filing an Offer, to put your best foot forward in getting the Offer accepted. Time, however, may not be on your side if the IRS is getting ready to levy you. So, don’t wait any longer!

The most important thing to know about Offers in Compromise is that you not only fix the old problems, but get a plan in place that keeps tax problems from happening again. Our office provides Relief and Restoration, through Relationships with our clients. If you would like more information on the IRS Offer in Compromise, call us today at 888-9-Tax-Help.

Travis Watkins
Senior Tax Attorney
Be the first to comment!
Post a Comment