Can I Pay The Amount Due In An Offer In Compromise In Installments?
Yes. There are two payment options to an offer in compromise. The one is a lump sum offer, where you are required to pay 20 percent of your offer amount as a down payment and the remaining 80 percent will have to be paid through monthly installments for five months once the Offer is approved. The second option you have is a periodic payment offer, which you will pay the offer in 24 monthly installments. You do have options, so you don’t have to pay the entire amount at once.
What Advantage Does A Lump Sum Cash Offer Have Over Short Time Periodic Payments Or Deferred Payment Offers?
The main advantage that a lump sum cash offer has over a periodic payment offer is that the IRS, if they consider a lump sum payment offer, they only consider 12 months of monthly disposable income. This means that if you have positive income, you will most likely be able to submit an offer in compromise with the lower offer amount if you use the lump sum cash offer method. So, that would be the main advantage. Obviously, the main disadvantage is if the offer is approved, then the remaining balance would have to be paid off within five months.
With a periodic payment offer, the IRS will consider 24 months of monthly disposable income. So, if you do have positive cash flow after all expenses are considered, then the offer amount may be larger but the benefit to the periodic payment offer is that you do have a two-year period to pay the offer amount if accepted off within a 24-month period.
What Can I Do To Protect My Offer In Compromise From Being Revoked?
Once an offer in compromise is approved, it is only approved conditionally. The main purpose of the offer in compromise program was to get people back into tax compliance. So, once an offer in compromise is accepted, you are required to file your tax returns on time for the next five years and then pay off the entire amount once the tax returns are filed, so no additional balances can accrue for the next five years. If there is any outstanding balance for the next five years, then the offer in compromise conditions are treated as not being met and the entire balance becomes due again. So, it is very important to make sure that you file on time, pay your entire balance, make sure you make estimated payments if required and also make sure that you make either the lump sum cash payments or the periodic payment offer payments on time and in full if an offer is accepted.
What If My Offer In Compromise Is Rejected?
If an offer in compromise is rejected and you do have the option of appealing the decision to reject the offer in compromise, and then the case will be assigned to the IRS appeals office who will review the case. If your appeal is rejected, you can also petition the tax court to review the IRS decision if your Offer in Compromise was filed through a Collection Due Process Hearing. The standard that the tax court will use to review that decision is an abuse of discretion. So, basically, they will just look whether the IRS abused their discretion in disallowing or in rejecting an offer in compromise.
What About Other Available Payment Plans?
If the taxpayer does not qualify for an offer in compromise because they have too many assets or too much monthly disposable income, then they can set up an installment agreement with the IRS. The IRS will generally accept an installment agreement if the taxpayer owes less than $50,000 and the amount that the taxpayer offers pays off the entire balance within six years or 72 months. If you owe more than $50,000, then the IRS will request that you send them a collection information statement and they will also analyze your financials to see how much you are able to pay every month. As with offers, if you propose a payment plan and the IRS rejects it and states that you should be able to pay more, you can appeal their decision if your case is with the revenue officer or if they send you a final notice of intent to levy, you can file for collection due process hearing to dispute and ask for a collection alternative such as the payment plan that can work with your financial situation.
Why Should I Retain An Attorney For Penalty Abatement Or Offer In Compromise?
Penalty abatements as well as an offer in compromise are oftentimes tricky situations where the factual situations would need to be researched and then see if there is legal precedence to support your position. A majority of offer in compromises that are submitted to the IRS does get rejected and the reason for this is either lack of submitting all required information or just because the taxpayer didn’t know how to proceed when the IRS rejects an offer or rejects the penalty abatement request and didn’t have the relevant knowledge on where to research case law or any other substantial authority that could have helped this situation. The IRS is not going to make it easy, and an knowledgeable and experienced tax professional will increase your chance of success.
I always recommend that if there is a lot of money at stake you don’t try to do it yourself and that you seek the help of an attorney to help you with the situation.
Additional Information On Penalty Abatement & Offer In Compromise
There are three different types of offer in compromises. The first one is the one that we mostly touch on, which is doubt as to collectability. That is when you are basically stating to the IRS that you are unable to pay the amount due, that the IRS is aware that you owe it but because of your financial situation, you’re unable to pay the amount in full in the period for which the statute of limitations on collection is still running. The second type of offer in compromise is called doubt as to liability. This can be filed if you don’t believe that you actually owe the balance that the IRS states that you owe, you never received the notice of deficiency from the IRS to dispute the balance or for any other reason that you believe that there was an error made on the account and that you don’t owe the full amount.
The third type of offer in compromise is based on effective tax administration. Basically, you’re telling the IRS that if they try to collect on this balance, it will be an unjust collection of taxes. Oftentimes, this works when the IRS is trying to collect on elderly people that made errors on tax returns when they were very old or they inadvertently omitted items when they were sick or disabled.
For more information on Offer In Compromise Installments, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling (714) 321-3369 today.
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