Set Your Mind at Ease…You can settle your tax debt for pennies on the dollar in what is called an Offer in Compromise. There are some steps that can help you navigate through this process and find out if you’re even eligible for an Offer in Compromise.
Truth can set you free…To get an Offer accepted you must prove to the IRS that you can’t ever afford to pay off your debt. These are the steps needed to give you a good chance of actually getting an Offer in Compromise:
1.You need to do an income and lifestyle analysis. The IRS will conduct a thorough investigation into your life, and you need to be prepared. You will need to see what your income is. You need to calculate your basic monthly expenses. You need to inventory your assets and figure out how much equity you have in them.
2.What are your basic monthly expenses: Your basic monthly expenses include mortgage/ rent, utilities, payment on a single family vehicle, food, basic clothing. Your monthly expenses that are not considered basic: credit card payments, any luxury items such as boats, other cars, other property, etc. Also if you send your kids to private school the tuition doesn’t count as necessary.
3.Your income after all basic expenses have been figured is called your Monthly Disposable Income or MDI. The formula the IRS uses to see if you might qualify is: MDI x 48 + liquid value of assets. If that total is more than your tax debt, you can not qualify for an Offer in Compromise.
4.Let’s say you do qualify…you still have to submit to the IRS’s income and lifestyle analysis. You then have to submit the paperwork to apply for an Offer in Compromise. The paperwork is very complicated, and any mistake can force you to start the whole process over.
5.Your Offer request can take a year or longer to be processed by the IRS, and even if you’ve done all you homework, dotted all your “I’s” and crossed all your “T’s” you still may not get approved. Only 2% of all applicants get approved for an Offer.
6.For the purpose of this article we assume you do get approved. You’re able to get your IRS tax debt reduced from $40,000 to $4,000. But you’re not done yet. In order to get the Compromise you have to commit to a five year contract with the IRS. During those five years you have to file on time every year. If you owe any further tax debts you have to pay them immediately. Failure to live up to the contract will result in the entire original debt being reinstated plus interest and penalties.
Getting through the long night…It is a fairly long and complicated process. But if you’re willing to take the risk then these 6 steps will help you along that long road to getting out of IRS tax debt.
Now you have the smoking gun…Use it!