The Offer in Compromise Program for Brookhaven, Pennsylvania Taxpayers

For taxpayers in Brookhaven, Pennsylvania, managing tax debt can be a challenging and stressful endeavor. Whether you’re an individual or a business owner, the burden of unpaid taxes can feel overwhelming. Fortunately, the Internal Revenue Service (IRS) offers a potential solution through the Offer in Compromise (OIC) program. This program can help qualified taxpayers settle their tax debts for less than the full amount owed, providing them with a fresh start and financial relief. In this article, we will delve into the Offer in Compromise program and its requirements, ensuring that Brookhaven residents are well-informed about their options when dealing with tax debt.

Understanding the Offer in Compromise Program

The Offer in Compromise program is a tax debt resolution program offered by the IRS, and it is a valuable resource for taxpayers who are unable to pay their tax debts in full. This program allows eligible individuals and businesses to settle their tax liabilities for a reduced amount. The goal is to provide taxpayers with a fair and reasonable opportunity to resolve their tax debts while ensuring they can meet their basic living expenses.

Key Benefits of the Offer in Compromise Program

• Debt Reduction: One of the most significant advantages of the OIC program is the opportunity to reduce your overall tax debt. Qualified individuals may settle their debt for less than the full amount owed, allowing them to save a substantial amount of money.
• Fresh Start: The OIC program provides a fresh start for taxpayers who have been struggling with tax debt. Once the OIC is accepted, taxpayers can move forward with their financial lives, free from the burden of past tax liabilities.
• Payment Flexibility: The program takes into account your ability to pay. This means that the IRS considers your income, expenses, and asset equity to determine a reasonable offer. The OIC is a flexible solution that can be tailored to your unique financial situation.
• Avoiding Liens and Levies: By successfully applying for and completing an OIC, you can prevent or remove tax liens and levies, which can have severe consequences for your financial stability.

Understanding the Requirements

While the Offer in Compromise program offers significant benefits, it’s crucial to understand that not everyone is eligible. The IRS has strict requirements that taxpayers must meet to qualify for the OIC program. Here are the primary requirements you should be aware of:

• File All Required Tax Returns: Before you can be considered for the OIC program, you must ensure that you have filed all required tax returns. This includes federal income tax returns for all tax years you are legally obligated to file.
• Make Estimated Tax Payments: If you are self-employed or have substantial income that isn’t subject to withholding, you must make estimated tax payments for the current tax year.
• Current Tax Year Compliance: You must remain current with your estimated tax payments for the current tax year. This is essential to demonstrate your commitment to meeting your tax obligations.
• No Ongoing Bankruptcy: If you have filed for bankruptcy and it’s still ongoing, you are generally not eligible for the OIC program. However, there are some exceptions, so it’s essential to consult with a tax professional for personalized guidance.
• Not in an Open Audit or Collection: Taxpayers with ongoing audits, open audits, or collection activities are typically not eligible for the OIC program. It’s crucial to resolve these issues before applying for an OIC.
• Demonstrate Financial Hardship: To qualify for the OIC program, you must demonstrate that paying your tax debt in full would result in financial hardship. The IRS uses a formula to assess your ability to pay, which takes into account your income, expenses, and asset equity.
• Compliance with Payment and Filing Requirements: If you have entered into a previous installment agreement with the IRS, you must remain current with your payments and tax filings while your OIC is being considered.

Applying for an Offer in Compromise

The process of applying for an OIC can be complex and time-consuming. It’s highly advisable to seek professional guidance, either from a certified tax attorney or an experienced tax professional. They can help you navigate the intricate requirements, assemble the necessary documentation, and ensure that your application is complete and accurate.

Here is a general overview of the steps involved in applying for an Offer in Compromise:

• Complete IRS Form 656: The first step is to complete and submit IRS Form 656, which is the Offer in Compromise application. You’ll also need to provide detailed financial information and supporting documentation.
• Pay the Application Fee: A non-refundable application fee is required for most applicants. However, there are exceptions for low-income taxpayers. Ensure that you pay the fee, or your application may be rejected.
• Submit Financial Statements: You will need to provide detailed financial statements, which include information about your income, expenses, assets, and liabilities. This information is crucial for the IRS to assess your ability to pay.
• Wait for Review: After you’ve submitted your application, the IRS will review it and may request additional information if needed. This process can take several months.
• Negotiate with the IRS: Once your application is accepted, you may have the opportunity to negotiate with the IRS to arrive at an acceptable settlement amount. This is a critical phase, as your ability to secure a favorable outcome often depends on your negotiation skills.
• Agree to Terms and Payment: If your offer is accepted, you will need to agree to the terms of the OIC, which includes making the agreed-upon payment within a specified time frame.
• Comply with Terms: After your OIC is accepted and paid, it’s essential to continue complying with your tax obligations, including filing all required tax returns and making any estimated tax payments.

Understanding the Offer in Compromise Process

Once you’ve decided to pursue the Offer in Compromise program and have sought professional guidance, it’s crucial to understand the step-by-step process you’ll go through. This knowledge will help you prepare for the journey and ensure a smoother application experience.

• Initial Assessment: Your tax professional will begin by conducting a thorough assessment of your financial situation. They will review your income, expenses, assets, and liabilities to determine if you meet the IRS’s requirements for an Offer in Compromise.
• Document Collection: You will need to gather and provide comprehensive financial documentation to support your application. This may include tax returns, bank statements, pay stubs, proof of monthly expenses, and details about your assets and liabilities.
• IRS Form 656 Preparation: Your tax professional will help you complete IRS Form 656, the official Offer in Compromise application. It’s crucial to provide accurate and complete information on this form, as any errors can lead to the rejection of your application.
• Calculation of the Offer Amount: The IRS uses a complex formula to determine your Offer amount, taking into account your monthly income and expenses, as well as the equity in your assets. Your tax professional will work with you to arrive at an offer that is both reasonable and acceptable to the IRS.
• Payment of the Application Fee: Most applicants are required to pay a non-refundable application fee along with their Form 656 submission. However, low-income taxpayers may be exempt from this fee.
• Submission to the IRS: Your tax professional will submit your completed Form 656 and supporting documentation to the IRS for review. Be prepared to wait several months for the IRS to process your application.
• IRS Review: During this time, the IRS will review your application and may request additional information or clarification if necessary. It’s important to be patient and responsive during this phase to avoid any unnecessary delays.
• Negotiation with the IRS: If your application is accepted, you will have an opportunity to negotiate with the IRS to reach an agreement on the final settlement amount. Skilled negotiation is crucial at this stage to ensure you secure the best possible outcome.
• Agree to Payment Terms: Once the IRS accepts your Offer, you will need to adhere to the agreed-upon payment terms. This usually includes making a lump-sum payment or a series of periodic payments over a specified period.
• Compliance with Ongoing Tax Obligations: After your Offer is accepted, it’s vital to continue complying with all your tax obligations. This includes filing all required tax returns and making any estimated tax payments. Failure to do so could result in your Offer being revoked.

For Brookhaven, Pennsylvania taxpayers struggling with tax debt, the Offer in Compromise program can be a lifeline to financial relief. While the requirements for the program are stringent, it offers an opportunity to settle tax debts for less than the full amount owed, providing a fresh start for those burdened by past tax liabilities. To explore this option and determine your eligibility, it’s essential to consult with a qualified tax professional who can guide you through the process. By taking the necessary steps and seeking professional guidance, you can work towards a brighter financial future and leave your tax debt worries behind.

If you’re a Brookhaven resident facing tax debt challenges, contact Gibson & Perkins, PC today. Our team of experienced tax professionals is ready to assist you in navigating the Offer in Compromise program and finding the best solution for your tax debt issues. Don’t let tax debt hold you back; take the first step toward financial relief and a fresh start by contacting us today.