Common Offer In Compromise Mistakes
The IRS Offer in Compromise program is a terrific opportunity for taxpayers to get a fresh start by wiping away their tax debt. However, it is not without it’s pitfalls. Here are 7 Stupid Mistakes I see people make with their offer in compromise that costs them a chance at a clean slate (in no particular order). For more information on the IRS Offer in Compromise program or for help with your offer, contact us to speak with an IRS Offer in Compromise Attorney.
Offer in Compromise Mistake #1: Hiding assets or money
In How the IRS Evaluates an Offer in Compromise, we discussed how the IRS uses your financial information to decide whether or not to accept your offer in compromise. This includes looking at all of your assets and income to decide if you can afford to pay more than the amount being offered. This naturally leads to the temptation to hide money and income from the IRS in order to make your offer look more attractive.
You must avoid this temptation.
The IRS will use a variety of tools to verify the financial information you provide on Form 433-A, including checking DMV records and reviewing financial statements. If they discover assets or money that you did not disclose your offer will be immediately rejected.
But that’s not all. Form 433-A is signed under penalty of perjury, which means you could be criminally prosecuted for perjury, which is a felony. If convicted, you would lose the right to vote, own a firearm, and would forever have a criminal record.
Offer in Compromise Mistake #2: Frivolous spending
As part of the offer in compromise process, the IRS will review your bank statements to verify your income and personal living expenditures. If they see frivolous spending, they will assume that you have untapped disposable income that can be used for paying your taxes, which most often leads to a rejection of your offer. So, don’t make this common offer in compromise mistake.
“Frivolous spending” can include eating out too often, shopping for unnecessary items like consumer electronics, and going on vacation. So, it’s vital that you closely monitor your spending and avoid any purchases that can be construed as unnecessary for at least three month prior to your offer in compromise submission, as well as throughout the entire time it is under consideration.
Offer in Compromise Mistake #3: Not paying the offer amount
The IRS does not require payment of the offer amount until after it is accepted. Depending on the conditions of your offer in compromise, you might be required to pay the offer in full or in payments. Either way, do not fail to pay the offer amount. This will cause the IRS to revoke acceptance of your offer in compromise, meaning that you have to re-submit it and go through the entire process all over again.
Offer in Compromise Mistake #4: Not filing their tax returns afterwards
As a condition of acceptance, the IRS requires that you remain in compliance with your tax filing obligations for the next five years. If you fail to file a tax return during this period, your offer’s acceptance will be revoked and the tax debt you once owed will be reinstated. So, it is vital that you file all of your tax returns, even if you cannot afford to pay the tax.
Offer in Compromise Mistake #5: Falling behind again on their taxes
Similar to the requirement that you file all of your tax returns, the IRS also requires that you not fall behind again on paying your taxes for the next five years. So, make sure that the correct amount of taxes are withheld from your paycheck or that you make the necessary quarterly estimated tax deposits on your self employment income. If you end up with a balance due at the end of the year that you cannot afford to pay, be sure to contact the IRS and establish a formal repayment plan. Do not let the balance linger or you might find yourself back to square one when your offer in compromise is reversed for failure to remain in compliance.
Offer in Compromise Mistake #6: Applying when they are not eligible
The eligibility requirements for the IRS Offer in Compromise program are strictly enforced. It is a waste of your time, money, and efforts to submit an offer if you do not meet these requirements. Of all the offer in compromise mistakes, this is the easiest to avoid.
Offer in Compromise Mistake #7: Inaccurate information in the application
The application process for the Offer in Compromise program is long and tedious. When filling out Form 656 and Form 433-A, you must be very careful to make sure all of your information is correct. Incorrect information can lead to processing delays and possible rejection of your offer.
One of the most common mistakes people make is misstating the amount of their tax debt or the year of their tax debt. Do not simply guess or go off of memory. You can call the IRS and verify this information by calling the taxpayer hotline.
Contact Us | Nevada Tax Debt Relief Law Firm
If you owe back taxes to the IRS and are considering an offer in compromise, we can help you avoid making mistakes on your offer in compromise. Contact us to set up an initial assessment to discuss your tax debt and your options for getting out of it.