The best time to file an Offer-in-Compromise is when you have all your ducks in a row. Failure to get this right usually results in the Offer being rejected and all your work will be for naught.
Here are the steps I follow:
- Get the IRS Tax Transcripts showing the dates filed and amounts owed and the date that the Statute of Limitations
- Get any past due tax returns filed and current year estimated tax payments up to date. The IRS will automatically reject any offers when the taxpayer is not in compliance.
- Gaither all the client information regarding financial assets and their expectations for future earnings.
- Prepare the IRS Form 433 which is used to report the financial information to the IRS.
- Calculate the Reasonable Collection Potential (also known as RCP) using the IRS
- Recommend changes that might make reduce the RCP result. For example, the IRS treats life insurance premiums as an allowable expense. If the client does not have life insurance, then we get them signed up and paying those premiums.
- Once the client makes the recommend changes, we must wait long enough so that the new payments will show on three months of bank statements.
Once we have the three months of bank statements, we can finish up the Offer-in-Compromise and include all the documentation that is needed to support our position. Typically, this is close to a 5-month proposition to get an offer completed. Not being in compliance, not including the documentation to support your position, or making the offer for an amount that is less than the RCP formula is a guarantee that the offer will be rejected.
If you or someone you know has received a Notice of Intent to Levy or some other federal or state tax issue, please feel free to contact me at either (352) 317-5692 or email jim@taxrepgainesville.com.
