An IRS Offer in Compromise can be a long and tricky process. It can take up to two years for the IRS to consider your Offer, once it has been submitted. Here are 3 reasons to be open and straight-forward.
You are Filing the IRS Offer in Compromise forms under oath
Yes, the IRS requires that you submit a long and detailed Form 433-A which is your financial disclosure form. The vast majority of Offers are made due to uncollectibility, so obviously the IRS wants to verify that you indeed have limited income and limited assets.
Yes, the IRS does indeed prosecute taxpayers who have failed to disclose assets and income on their Offer in Compromise applications. Remember that the IRS doesn’t really like to grant OICs in the first place, so it stands to reason that if they catch folks lying on their OIC applications, then the IRS will pursue them vigorously.
I recently had to go to great lengths on behalf of a client attempting an Offer in Compromise. He had been dealing with an IRS Revenue Officer on his own, and had hand-written his Form 433A and faxed it to her. After consulting with him however, I discovered that he owned free and clear a mobile home in North Carolina that was not disclosed on his paperwork. I asked why he hadn’t disclosed it, and he said that he had worked hard to purchase it because he and his wife wanted to retire there at some point in the future. Unfortunately, you cannot pick and choose the assets that you disclose on your Form 433-A. You have to list everything you own. Yes, the IRS does consult the Department of Motor Vehicles (DMV) and it does utilize Accurint, an online asset-location service to find real estate, vehicles and other assets that you might own.
Fortunately, in my client’s situation, I convinced the IRS Revenue Officer that my client had simply forgotten to list his asset. We worked out the case to his favor with a relatively small Offer. But remember, that the Form 433A is signed “under the penalty of perjury for false statements”. So, don’t try and push your luck by failing to list assets.
By Attempting to Hide Assets, You are Wasting Your Time
What do I mean by “wasting your time”? Remember that an OIC application stops all IRS collections activity. But at the same time, you are also stopping your Collections Statute Expiration Date (CSED) from continuing. What is the CSED? It’s the 10-year period that the IRS has to collect back taxes from you. But that 10-year period can be stopped. For example, if your Offer in Compromise application takes 12 months to be rejected, then the IRS tacks on an additional month following the rejection, so you will add a total of 13 months to your CSED. If your CSED was originally April 30, 2022, now with the rejection of your OIC, your new CSED will be May 30, 2023.
You are Also Wasting Your Money
By wasting your money, I mean that with Offer in Compromise applications, you have to pay a $186 filing fee along with a 20 per cent deposit towards your Offer. If your Offer amount is $10,000, then you have to send in a check for $2,000 along with your Offer. If your Offer is rejected, then the IRS will not refund your $2,000 check to you. Instead, it will be applied to your tax debts.
Additionally, don’t waste your money by hiring a tax professional and paying them good money unless you want to file a legitimate Offer in Compromise application. Submitting an Offer in Compromise takes a lot of work for any tax pro and you will be throwing your money down the drain when the IRS discovers your failure to disclose assets.
In sum, the IRS generally approves around 40 per cent of all Offer in Compromise applications. If you want your Offer to be successful, it’s wise to do it the right way!