IRS Offer in Compromise – Extensive preparation is key to success
I never met Mr. Bell. He passed away just a few years before my time. However, when I read about his life I come away convinced that he had his share of ups and downs and that those experiences helped him realize the importance of detailed preparation.
We have learned the same thing over the years. As a general rule, our clients are most successful when they are prepared to work with us in the detailed preparation of a case.
Doing it right the first time is not an easy task.
The IRS Offer in Compromise in particular requires a large amount of preparation.
Much more preparation is required than most of our clients realize when they initially contact us. The following is a list of the steps we take from beginning to end in an effort to make sure the case goes well.
Preparation begins with a phone call. Potential clients call and speak to me for 15 to 20 minutes for free and I ask them a number of questions about their finances. I do this to determine whether an offer in compromise may make sense i.e. to find out if there is anything that would preclude a person from even considering the Offer in Compromise as a way to substantially reduce or eliminate tax debt.
In Person Meeting
If we think we can help based on the information gathered during the phone discussion, we meet in person. The potential client brings a number of items to that meeting including some pay history, tax history, budget, asset list, debt list and a good memory if they have one.
Additional questions are asked, goals are discussed, and some numbers are crunched.
This process will usually give us enough information that we can either solidify or change our original opinion about whether the Offer in Compromise will make sense or whether another avenue should be explored.
After the initial meeting, our clients will provide a stack of documents that may include profit/loss statements, tax return information, several months of paystubs, several months of proof of payment related to housing related costs, medical expenses insurance bills, secured debt payments, unsecured debt, other tax debt and related payments, bank accounts statements for several months, information related to assets and transfers of assets and other items.
While the client is providing the above we usually order and review IRS documents in order to find out when the IRS statute of limitations will run on the debts in question, whether they will be dischargeable in bankruptcy and when, whether they have been correctly calculated, whether there are missing returns, income information for years any returns are missing, penalty information in order to help determine whether penalty abatement might be an option etc.
When all of the above information has been collected and reviewed we typically meet with our client again and discuss whether the offer in compromise will make sense based on the situation as it stands or whether some changes may need to be made to budget or assets in order to better qualify. If a bankruptcy makes more sense we discuss this and why. If an IRS payment plan negotiation makes more sense, this is also discussed in detail.
If time permits, many clients undergo a period of “planning” in order to ensure that the case has the best chance of success. This planning period may involve the negotiation of an IRS payment plan to help avoid IRS collection activity. It often includes waiting for certain tax debts to become dischargeable in bankruptcy which may effect the Offer in Compromise, waiting for the filing of tax returns and for a specific amount of time to run out after assessment of the debt, making changes to budget, making changes to tax withholdings and asset items, making sure returns are filed and all estimated payments have been and are being made in order to make the offer in compromise work. These different planning options sometimes hold up the filing of the Offer for several months….on purpose.
Preparation of Final Documents
The documents provided to the IRS to qualify for an Offer in Compromise are typically thick. Proof of assets, values, income and most budget items must be provided and they must match the financial statement AND it all needs to make sense and be recent.
This process alone is time consuming and difficult for a client especially. Receipts and cancelled checks need to be kept and gathered and changes need to be minimized without first making a joint decision to make the change.
When the Offer packet is filed, it must include an offer in compromise request or form 656. It must also include a filing fee and the first payment if the client is paying the offer amount in installments OR a percentage of the offer amount if the client is proposing a cash offer. The IRS will review the “packet” and determine if it is “processable”. If not, it will typically ask for additional documents.
Review of Offer by Offer Examiner
When the Offer Examiner is reviewing the financial documents and if every item claimed isn’t backed up with enough proof and within the IRS guidelines, the Examiner will disagree with those aspects of the offer and counter OR reject outright.
The key is a completely planned and fully prepared offer packet that doesn’t allow the Offer Examiner to speculate, wonder or question.
The goal of thorough preparation is to avoid the necessity of appealing some aspect of the Offer Examiner’s response.
The best outcome is the acceptance of the Offer by the Examiner. This will only be achieved if a lot of preparation has taken place. There is no substitute.
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