Why Your Offer In Compromise May Not Get Accepted 1


Why Your Offer In Compromise May Not Get Accepted - Tax Attorney Explains

An Offer in Compromise is an agreement between a taxpayer and the Internal Revenue Service that settles a taxpayer’s tax liabilities for less than the full amount owed. For many taxpayers seeking relief from an overwhelming past tax bill, the most common solution they will hear about is an Offer in Compromise. Some tax relief companies, especially those advertising on the radio and TV, will push an Offer in Compromise as if it were this easy, guaranteed solution.

So if you’ve gotten just this far, you may be surprised to learn that not every Offer in Compromise application is accepted!

The two biggest reasons the IRS turns down an Offer In Compromise:

  • Making too much money
  • Having too much equity in assets

Making too much money

In this scenario, the IRS determines you can pay your tax debt off based on how much “available income” you have at the end of the month.

It’s not all based on your actual expenses. The IRS has “collection financial standards” that apply and some people spend more than those amounts.

Example: $100K income, single but nothing left over, and debt is $40K

Having too much equity in assets

The equity in your assets, even if valued at 80%, could pay off your tax debt if the assets were sold. There are some ways to get around this, but as a general rule, it’s how the IRS calculates Offers.

People with assets that are substantial but are broke month to month are good candidates for Currently Not Collectible status, which is different from an Offer in Compromise.

Example: Debt of $100K, 401K valued at $200K

Not sure what to do with your Offer In Compromise? Get a free consultation!

Call us at (888) 515-4829 or go to trp.tax/start

If we cannot help you, we’ll tell you and point you in the right direction.

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One thought on “Why Your Offer In Compromise May Not Get Accepted

  • Hosea

    We are in our current situation because we went at it alone. We thought it wise to get consultation this time. In July of 2019 we attempted to start a non-emergency medical transport business. I heard that it would be good to create a disregarded LLC for personal protection and have income pass-through. We selected a business name and set up the LLC first – mistake. We never setup the NEMT (insurance too high). We changed the LLC name to something more general and left it alone. I kept working at my regular job then COVID hit.

    Long story short; we didn’t conduct business with the LLC until mid Sept of 2021; we never file form 568 or paid the $800 fee, and now it’s 2022. We are not in any kind of collections, yet. Can we make an offer in compromise at this point to the FTB and then just close the LLC?
    Thank you.