The Basics of an Offer in Compromise

You’ve probably all heard of those TV or radio commercials where some company promises to settle your back federal taxes for pennies on the dollar. But here’s what those commercials don’t tell you about the OIC program.

The OIC is the program that, if you meet certain requirements, can settle your past federal back taxes for pennies on the dollar. But not everyone can qualify for this program and it takes a lot of work to be successful. So here are the basics.

You must first file any prior tax returns you never filed, even if you don’t owe any money. If, for example, you never filed your 2006 tax return, then you must file it.

Next, you must make a full financial disclosure to the IRS of all your assets, income, and expenses. If you own a home, you must disclose the fair market value of the home along with the mortgage balance. You’ll also need to disclose any checking or savings accounts you may have and must provide the IRS with not one, not two, but three months of bank statements.

Of course, they’ll also want to know if you have brokerage accounts, mutual funds, or stocks and if you’re about to inherit money from your long-lost uncle. You’ll also need to disclose any vehicles you own and whether or not you have auto loans. I often have a client who drives a vehicle that is 15 years old and they just don’t think to let me know. But when it comes to vehicles, the Internal Revenue Service will check records from the Department of Motor Vehicles. So you better reveal all your vehicles, even very old ones.

Now, after you have disclosed all of your assets, you must report all of your income. This includes income from a W-2 job, self-employment income, unemployment income, disability income, or any interest or dividend income from investments.

After disclosing all of your assets and income, itemize all of your expenses. Therefore, it will disclose your mortgage or rent payments, utilities, car expenses for gas or insurance, out-of-pocket medical expenses, or for health insurance. It will also include any other taxes you are currently paying to a local state or city. Finally, if you are making child support payments or have credit cards and are making the minimum monthly payments, these expenses will also be listed.

Now, of course, after disclosing the above expenses, you’ll need to provide the necessary supporting documents to the IRS so they know you’re not just making up the numbers.

Basically, this includes all the financial information you need to provide to the IRS. The Offer in Compromise Program is a great way to legally reduce and eliminate your back taxes. However, it is very, very complicated and you need professional advice and assistance to be successful.

Dealing with the Internal Revenue Service can be very difficult and expensive for the average person or business. You must be well prepared when dealing with the IRS. The author has over 20 years of experience successfully helping clients with the IRS.