An Offer in Compromise attracts many taxpayers who owe a significant amount of money to the IRS. This tax relief solution allows you to pay the IRS a one-time bulk payment fee that fits within your means, and the IRS forgives the rest of your tax debt. This tax resolution option may be highly sought after, but it is also one of the hardest for which to qualify. The IRS has strict restrictions on who can qualify, although at times the IRS is more willing to compromise. Right now is an excellent time for applying for an Offer in Compromise because since 2012, the IRS has been accepting far more offers than in the previous decade, according to Forbes.
A Higher Acceptance Rate
In 2012, 64,000 people applied for an Offer in Compromise, of which 24,000 were approved, which correlates to a 38 percent approval. The next year, there were 10,000 more applicants and 7,000 more approvals, leading to a 42 percent approval. 2014 had a slightly lower approval percentage at 40 percent, which included 27,000 approvals out of the 68,000 applications. These three years had approval ratings much higher than the first decade of the 2000s, which often remained in a 25 to 30 percent approval range.
To determine whether or not to accept an Offer in Compromise, the IRS reviews your income, assets, age, and other factors to determine the reasonable collection potential. They also review the ability for you to pay your entire tax liability both now and in the future. With this information, they create what is known as the Reasonable Collection Potential.
Relaxing the Criteria for Approval
The 2012 Fresh Start incentive made some changes to the Offer in Compromise acceptance policy, relaxing some of the rules. The way the IRS calculated a taxpayer’s future income changed, and they allowed some bank accounts, a portion of the equity of motor vehicles, and assets or property that produced income to be excluded when valuing assets. The IRS also changed what was allowed in the monthly budget, including repaying student loans and state and local taxes. The IRS also expanded the Allowable Living Expense amount.
The IRS also reduced the future time period for which they review the reasonable collection potential. If you plan to pay the offer in five or fewer installments, then it only looks at one year of future income. For those making more payments, it reviews two years of future income. All of these changes have led to 75 percent less money required to settle a tax debt for those paying it off in five or less installments.
Now is the Time to Apply for an Offer in Compromise
For taxpayers feeling completely weighed down by their federal tax debt and believing they will never be able to pay it off, the chances of being approved for an Offer in Compromise has never been higher. However, it remains one of the most difficult tax resolution options for which to be approved. Therefore, you should also research other tax relief options, such as an Installment Agreement to see what is right for you.
The tax professionals at Fidelity Tax Relief are well versed in the requirements for successfully applying for an Offer in Compromise. Their help on your application increases your chances of being accepted. They will also discuss your other tax resolution options with you so that you choose the best option for your situation.