Understanding the Offer in Compromise process with the IRS can be challenging, especially when even small missteps can lead to delays or rejections. Knowing the common mistakes that people make and how to avoid them can significantly increase your chances of a successful outcome. From submitting accurate information and staying on top of future tax obligations to ensuring you meet eligibility requirements, taking a proactive approach will help you sidestep these pitfalls. In this guide, we’ll walk through the most frequent Offer in Compromise mistakes so that you can confidently approach the process and make the most of this opportunity for tax relief.
Common Offer In Compromise Mistakes
Submitting accurate information on your Offer in Compromise application is crucial, as even minor errors can lead to delays or outright rejection by the IRS. Ensure that your tax debt details are verified with the IRS to avoid costly setbacks and additional penalties. By double-checking everything, you increase your chances of a successful outcome and can move closer to resolving your tax debt.
Inaccurate information in the application
Making mistakes on your Offer in Compromise application can be costly. The IRS meticulously reviews every detail on Form 656 and Form 433-A, and any inaccuracy can lead to delays or even outright rejection. Double-checking your information before submission is essential to avoid these pitfalls.
Here’s what you need to remember to prevent this common error:
- Make sure your tax debt amount and the relevant years are accurate.
- Verify every piece of information with the IRS, either online or by calling their hotline.
- Keep copies of all your forms and correspondence with the IRS for your records.
Avoid guessing or relying on your memory. Being off by even a small detail can lead to setbacks. If your offer is delayed, it can mean more stress and potentially more penalties down the road. An accurate, well-prepared application will save you time, frustration, and potentially even money.
Falling behind again on their taxes
Avoiding future tax debt is crucial to maintaining the benefits of an accepted Offer in Compromise. The IRS expects you to stay on top of your taxes for at least five years after approval. Falling behind can lead to the reinstatement of your original debt, negating all your efforts.
To avoid this mistake, keep these points in mind:
- Ensure accurate tax withholding from your paycheck.
- For self-employed individuals, make quarterly estimated tax payments.
- If you owe at year-end, promptly arrange a repayment plan with the IRS.
Remember, your offer isn’t truly settled until you demonstrate long-term compliance. Establishing good habits now will protect your financial future and prevent you from having to restart the Offer in Compromise process.
Frivolous spending
Frivolous spending can sabotage your Offer in Compromise, as the IRS will scrutinize your financial history. If they detect non-essential spending, they may assume you have extra income available, leading to a potential rejection of your offer.
To keep your offer on track, consider the following:
- Limit dining out, electronics purchases, and vacations.
- Avoid any spending that could appear excessive or unnecessary.
- Maintain frugal habits for at least three months before and during the application process.
Discretion is key when you’re under IRS review. Avoiding unnecessary expenditures during this time isn’t just about saving money—it shows the IRS you’re serious about resolving your tax debt and complying with their terms.
Not paying the offer amount
Failing to pay your accepted Offer in Compromise amount can undo all your hard work. Even though payment is not due until the offer is approved, not following through on your commitment can lead to its cancellation. You’d then need to resubmit your offer and start the process all over again.
Here are key points to remember about paying the offer amount:
- You may have the option to pay in full or through installments.
- Missing a payment could trigger an immediate revocation.
- It’s essential to stay on top of your payment schedule to avoid complications.
Think of paying the offer as the final step in securing your financial relief. Don’t let delays or missed payments jeopardize your chance to move forward without the burden of tax debt looming over you.
Not filing their tax returns afterwards
Complying with tax filing requirements after your Offer in Compromise is accepted is non-negotiable. The IRS mandates that you file all returns for five years following the acceptance of your offer, and missing even one year can lead to revocation.
To ensure compliance:
- File every return on time, even if you owe money.
- Keep a detailed record of all filings as proof.
- Set reminders or use tax filing services to avoid missed deadlines.
Keeping up with your taxes secures the benefits of your offer in the long run. Falling out of compliance risks undoing all your progress, potentially reinstating your original debt and its penalties.
Hiding assets or money
Trying to hide assets or income when applying for an Offer in Compromise can backfire severely. The IRS has robust methods to verify the information on Form 433-A, and they will investigate discrepancies. Hiding information can lead to immediate rejection or worse.
When disclosing assets, remember:
- The IRS checks DMV records and reviews financial statements.
- Any undisclosed assets can void your offer.
- Signing Form 433-A under penalty of perjury makes you liable for prosecution if caught.
An honest and transparent approach is the best way to ensure the IRS considers your offer. It might be tempting to hide assets, but the risks far outweigh any potential short-term gains.
Applying when they are not eligible
Before applying for an Offer in Compromise, ensure you meet the eligibility requirements. The IRS has specific criteria, and failing to meet them means wasted time and effort. Submitting an ineligible offer is a common and easily avoidable mistake.
Key points to check for eligibility:
- The IRS considers your ability to pay and future income.
- You must be current with all required tax filings.
- Certain debts, like those in bankruptcy, may affect eligibility.
Taking the time to verify your eligibility can save you from frustration and expense. Ensure you’re a qualified candidate so your efforts toward tax relief aren’t wasted.
Missing Important Deadlines
Timeliness is crucial when applying for an Offer in Compromise, as missing key deadlines can jeopardize your chance for tax relief. The IRS sets specific deadlines for submitting forms, making payments, and providing any requested documentation. Failing to meet these deadlines can lead to delays, additional penalties, or even rejection of your offer.
To stay on track, keep these points in mind:
- File Your Offer in a Timely Manner: Make sure to submit all forms and payments within the IRS’s specified timelines.
- Respond Promptly to IRS Requests: The IRS may ask for additional information; respond quickly to avoid processing delays.
- Meet Payment Deadlines: Once your offer is accepted, adhere to the agreed payment schedule to avoid potential revocation.
Staying organized and proactive about deadlines will help ensure a smoother Offer in Compromise process and improve your chances of success.
Inadequate Financial Preparation
Preparing for an Offer in Compromise goes beyond paperwork—you need a clear picture of your finances to demonstrate to the IRS that you can’t pay your full tax debt. Without a solid understanding of your monthly income, expenses, and asset values, you risk underestimating or overestimating your offer amount. This can either result in rejection or put an unnecessary strain on your finances.
Consider these steps to strengthen your financial prep:
- Review Your Monthly Budget: Document all income sources and necessary expenses to calculate your Reasonable Collection Potential (RCP).
- Gather Asset Valuations: Know the value of your assets, such as property, vehicles, or investments, as these will influence your offer.
- Plan for Future Tax Payments: Make sure you have a plan in place to avoid future tax debt and remain compliant post-acceptance.
By preparing financially, you present a more accurate and compelling case to the IRS, giving you a better shot at having your offer accepted.
Conclusion
If you’re facing back taxes and thinking about an Offer in Compromise, you’re not alone. We’re here to guide you through it. Avoiding costly mistakes can make all the difference in getting your offer accepted, and our team is ready to help you every step of the way. By working with us, you’ll gain a clear understanding of your options and how to tackle your tax debt effectively.
Don’t let uncertainty hold you back. Reach out to us today for an initial assessment, and we’ll work together to evaluate your financial situation and outline a plan tailored to your needs. Let’s take the first steps toward resolving your tax debt and getting your financial future back on track.
Frequently Asked Questions
What should I do if my Offer in Compromise is rejected by the IRS?
If your offer is rejected, you have the option to appeal within 30 days of receiving the decision. Review the IRS’s reasons for rejection carefully, as addressing those concerns can improve your chances on appeal or if you reapply.
How long does the Offer in Compromise process take?
The IRS typically takes 6 to 12 months to process an offer, though complex cases can take longer. While you wait, the IRS will usually suspend collection actions, giving you temporary relief from levies or garnishments.
Can I include business tax debt in an Offer in Compromise?
Yes, the IRS allows you to include business tax debt if you’re self-employed or have a business entity with outstanding taxes. You’ll need to provide detailed financial information for your business as part of the offer process.
Will the IRS check my credit report when reviewing my offer?
The IRS does not directly check your credit report, but they will review your financial records and may verify assets through other means. They have access to DMV records and financial accounts, so be transparent to avoid complications.
Is an Offer in Compromise my only option if I can’t pay my tax debt?
No, other options are available, such as installment agreements or Currently Not Collectible (CNC) status. Explore these alternatives to find a solution that aligns with your financial situation if an offer doesn’t fit your needs.
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