SETTLE YOUR TAX DEBT: OFFER IN COMPROMISE
Many individuals and business owners are skeptical about whether the IRS will settle tax debts for less than the full amount due. The disbelief arises out of past and present abuses by so-called “tax resolution companies” that operate outside of the Bar. Nevertheless, with proper handling, a successful Offer in Compromise proposal can eliminate up to 99% of your federal tax debt.
There are several factors to analyze when submitting a settlement offer to the IRS. However, many practitioners over simplify the process during the initial consultation which results in clients paying for a strategy that will not work. Therefore, it is important for clients to consult with a licensed attorney that has experience negotiating settlements with the IRS. At Spaulding Legal, APC we take the time to analyze your specific situation in order to make the appropriate recommendation from the outset.
A CUSTOMIZED APPROACH TO SETTLING TAX DEBTS
Preparing and submitting an offer in compromise to the IRS generally involves full disclosure of your business’s financial situation. The financial analysis is similar to a bankruptcy filing. However, there are several nuances involved with preparing an offer in compromise for a business. Namely, the IRS will likely require each of the owners to disclose their financials too. The requirement exists because the IRS wants to verify that money is not being improperly transferred from the business to the owners. With business offers, you must present an organized case that proves a settlement is in the best interest of the government. At Spaulding Legal, APC we make sure your case is organized and persuasive, which gives you the best chance at settling your tax debt so you can start focusing on your business again.
NOT ALL OFFERS ARE THE SAME
Three major categories fall within the offer in compromise program. This is important to know because many tax practitioners only handle one type, which deals exclusively with collectability. In other words, if they think you do not qualify under the collectability criteria then you may get left behind. At Spaulding Legal, APC we take the time to explore each available solution to your issue.
Doubt as to Collectability (“DATC”)
DATC offers are the most common of the three. The object of submitting a DATC is to show the IRS that based on legal collection standards the IRS would not be able to collect the full amount due within the collection statute expiration date (“CSED”), which is typically ten years from the date your return was filed. The analysis focuses on two primary financial aspects, monthly disposable income and net equity in assets. There are several benefits to having competent representation when submitting this type of offer.
- Minimize net equity
- Minimize monthly income
- Increase monthly expenses
- Avoiding dissipation of assets
- Forcing the IRS to follow the law
- Forum selection (Collection Due Process Hearing, Campus, Appeals, etc.)
Effective Tax Administration (“ETA”)
Many tax professionals widely overlook ETA offers. Congress understood that under certain conditions, taxpayers should be relieved of their tax burden based on equity and fairness. ETA offers usually arise when a taxpayer has enough net equity in assets (house, IRA, 401k, etc.) to full pay the taxes due. However, it may be inequitable to force them to use that equity because they may need it in the future.
The major difficulty in getting any ETA offer accepted is convincing the IRS employee that they have the authority to accept these offers under the right set of facts. Usually, it requires several conversations with their manager(s) or an appeal. However, if the law and facts are presented correctly, you could avoid facing the hardship of paying back the entire balance owed. At Spaulding Legal, APC we have successfully argued ETA offers in the past saving clients thousands of dollars.
Doubt as to Liability (“DATL”)
DATL offers are also overlooked by many tax practitioners. This analysis differs significantly from the first two. DATL offers do not require financial disclosure by the taxpayer. Instead, these offers look at the underlying liability. More often than not, a taxpayer will submit this type of offer when the liability is in question. For example, if the IRS assesses a tax liability and the taxpayer was not available to defend against the assessment at that time. The key is “doubt” which may reduce the amount owed to $1 depending on the circumstances. To be successful with a DATL offer you must include a detailed, organized, presentation of the facts which demonstrate the liability may not be correct. DATL offers can help the IRS avoid a later court case and if presented correctly will reduce the taxpayer’s liability. Spaulding Legal, APC can effectively analyze your case to see if a DATL offer is the best solution. If it is, we have experience preparing, submitting, and arguing these offers to the IRS.