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Making an offer in compromise to resolve tax debt, part 2

Let’s pick up the thread from our post last week on points to consider when applying for an offer in compromise (OIC) from the IRS.

As we mentioned in that post, it is possible to use a new online tool to get a sense of whether you will be eligible for the program. And it’s true that the IRS does use set formulas in making determinations of how much tax debt a taxpayer should be able to pay.

But these formulas are not the final word. One of the ways that a tax attorney can assist in making someone’s case is in working with the IRS to highlight subjective elements of a taxpayer’s story. Putting that story into a positive framework can go a long way toward making approval of an OIC more likely.

Of course, subjective factors and objective factors are often closely connected. For example, suppose a taxpayer in unable to pay his or her taxes because he or she has been laid off.

If this taxpayer is young and healthy, with good job prospects, the IRS is apt to consider the length of time remaining in the statute of limitations period carefully. The general rule is that the IRS has 10 years to collect unpaid taxes. If there is still a lot of time remaining before the limitations period runs out, the IRS is less likely to approve an OIC for such a taxpayer – at least not right away.

If, however, a taxpayer has a serious health condition that prevents him or her from working, and there is a substantial likelihood of that condition continuing, this would be a factor in favor of OIC approval. Even if there considerable time left before the limitations period expires, the IRS may conclude that it should get what it can now through an OIC.

In short, the offer in compromise process is a pragmatic one. It does not merely involve the application of rigid formulas.

Source: Fox Business, "Tips for Preparing an Offer in Compromise," Bonnie Lee, August 15, 2013

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