Failure to get your offer in compromise (OIC) accepted is always devastating both financially and even emotionally because you are left with a tax burden that might be worse than before. A lot of these offers are rejected because incompetent tax resolution firms make one of six common mistakes. So, what are these mistakes, and how can you avoid them? We have looked at the 6 common offers in compromise mistakes that you should avoid.
What is an Offer in Compromise?
You cannot make an OIC if you don’t know what it entails. This is an option provided by the IRS that permits taxpayers to settle part of their debts. It is a great option since it gives taxpayers a new beginning with the IRS, but the primary aim of the offer is to come to an agreement for payment that is friendly to both the IRS and the taxpayers.
You can submit an offer in compromise on the following grounds:
• Doubt as to collectability – When you are financially unable to pay your full tax debt.
• Doubt as to liability – When the accessed tax debt has errors, or the amount is incorrect.
• Effective tax administration –When you can pay the whole debt, but it would lead to a financial problem in the future.
There are two types of OIC based on payment options:
• Lump sum offer – This offer allows you to pay the whole tax debt within 5 months from the date of approval. You need to pay 20% of the tax debt when applying for this offer.
• Periodic payment offer – This offer allows you to pay your tax debt within 6 to 24 months. You need to make the first payment when applying for this offer.
Mistakes to Avoid When Making the Application
These six common mistakes can make your OIC to be rejected.
1. Failure to Reveal Finances
You are expected to disclose all your finances when submitting an OIC. The IRS expects you to disclose the amount of money you earn, the amount of money you have saved, and the assets you own.
The IRS can secure or request for you to provide the following details when verifying your financial disclosure.
• Bank records
• Income earning statements
• DMV records
• Financial statements regarding investments, dividends, and annuities
You will benefit if you are honest when making your submission and avoid the IRS denying your offer in compromise.
2. Frivolous Spending
When reviewing your OIC application, the IRS might examine your bank statements to ascertain your income as well as expenditures. If they come across frivolous spending, they might assume that you have unused disposable income that you can use to pay your taxes. This will automatically lead to rejection of your offer, so avoid the overspending mistake.
Frivolous spending might include shopping for unnecessary things like consumer electronics, eating out regularly, and going on a vacation. Hence, it is important that you monitor your spending and don’t buy things that are not necessary for about three months before you submit your offer. Also, avoid making this mistake when your offer is under consideration.
3. Mathematical and Computation Errors
Mathematical miscalculations are common mistakes that can affect your tax returns and even your offer in compromise. Sadly, a significant number of taxpayers are audited because of mathematical errors. If the digits in your forms don’t add up correctly or are inaccurate, there is a high possibility of the IRS noticing it.
The other error you should avoid is the computation error. These errors are similar to mathematical errors but are specific to tax-returns entrances such as withholdings, write-offs, estimated tax payments, and taxable income. The IRS easily spots these errors.
You can use a software system when filing your return or seek professional help to reduce these errors. Also, use the exact number on the tax forms and do not round off. Another thing, ensure that you double check your application before you hit the send button.
4. Leaving Blank Spaces
When you submit a form that is not completely filled out, the IRS will automatically reject it. Unexplained spaces will make the IRS wonder if you or your EA or CPA is hiding something. Besides, the IRS won’t take you seriously since it seems like the person applying doesn’t know what he or she is doing.
You should clear up any queries about filling out an OIC form and avoid the black space mistake by contacting the IRS officials through their website. You can also hire a qualified person that has filled out these forms before.
You should continue to submit your tax returns when your offer in compromise is under review. If you don’t file your returns on time, you will compromise your OIC application and might lead to rejection.
You might assume that it is better to hold off filling your tax because you don’t have enough money to pay what you owe, but this is not a good idea. Avoid this mistake by filling your returns even if you don’t have the money to pay.
6. Ignoring the Statute of Limitations
This is a common mistake that most people don’t even know it exists. The IRS has a decade to collect all the money you own the state in the form of taxes. However, this timeline can change if you take the following measures:
• File an OIC
• Fill for bankruptcy
• Request an installment agreement
• Default on an installment agreement
Before you submit a new OIC, you should ascertain whether the debt is still active or it has passed its statute limitations. You can hire a tax expert who can get copies of your tax documents to accomplish this. Keep your records in order before you decide to apply for a fresh OIC by confirming your current status.
The offer in compromise might be the tax relief you need to settle all your tax debts. If you intend to submit an offer, ensure that you do it right. Try and avoid the six mistakes at all costs, and your offer will likely be accepted (provided you qualify)
If you need help with an Offer in Compromise, or just need help/advice about your tax matter, contact the lawyers at Ayar Law for free, no-obligation, tax advice 800.571.7175 You’ll be glad you called