Should unemployed taxpayer make offer in compromise with IRS?

Making an Offer in Compromise When Unemployed – IRS Tax Debt Relief

Should I Make an Offer in Compromise While Unemployed?

Unemployment as a Factor for Offer in Compromise

An Offer in Compromise is one of the many tools in the tax debt resolution toolbox. An Offer in Compromise is is essentially an offer to make a lump sum payment, or 24 monthly payments to the IRS in an amount less than the entire tax debt amount, which the IRS can choose to accept in full satisfaction of the tax debt. One of the main factors for the IRS to accept or deny an Offer in Compromise is the taxpayer’s “reasonable collection potential”. It would make sense that unemployment would lower ones collection potential, and increase the likelihood of the IRS accepting an Offer in Compromise, right? Well, the answer might surprise you.

First, let us take a look from the perspective of an employed person making an Offer in Compromise to the IRS. An employed person makes X dollars. The IRS knows this person made X dollars last month, X dollars this month, and will likely make X dollars next month. The employed persons collection potential is fairly certain. The IRS can look at the level of income and determine if the offer they made is reasonable.

The income of an unemployed person is less certain. If a person made $100,000 a year last year but is currently unemployed, who is to say they won’t go right back to making  decent income next month or next year, or some time after the offer in compromise is accepted? Perhaps they will make even more money than before. Perhaps if the IRS holds out, they will be able to get payment in full for your tax liability, maybe even garnish your wages directly. The bottom line is that unemployment adds another factor for the IRS to consider when evaluating an offer in compromise; a factor that can work against the taxpayer!

How Can G&G Law, LLC Help Unemployed Taxpayers with Tax Debt?

Just because you are unemployed does not mean that your offer in compromise will get rejected. As competent and experienced tax resolution attorneys, we can lessen the affect unemployment has on the offer in compromise consideration process by:

  • explaining to the IRS that employment in the near future is not likely;
  • finding and presenting evidence of a loss in future earning capacity; and/or
  • offering the IRS a reason why future employment will not affect collection potential.

Should Unemployed Taxpayers Make an Offer in Compromise?

Nothing prevents an unemployed person from making an offer in compromise. However, while you CAN make an offer while unemployed, the more important question is: SHOULD you?

Every case is different. The reason one owes a tax debt to the IRS, how long they have owed it, the amount of the tax debt, and the financial circumstances of the taxpayer are different in every situation. Without reviewing the totality of the circumstances, it is impossible to make a recommendation. However, there are other options for settling tax debt besides an offer in compromise. You can have your accounts marked “Currently Not Collectible” due to unemployment, which will stop the IRS from taking your savings until your financial situation improves. You can get set up with a Partial Payment installment Agreement that is manageable with your limited financial capacity. If your finances are totally unmanageable, you may even be a candidate for bankruptcy.

Before proceeding with any tax resolution method with the IRS, you should consult a tax resolution professional. Only someone with a full understanding of your situation and a complete knowledge of IRS policy and procedure can properly advise you on how to proceed. If you need to resolve a tax debt with the IRS, we are here to help. We are not simply some tax hotline from an infomercial: Call 203-740-1400 to speak to a tax resolution attorney.


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Offer in Compromise with IRS

What is an Offer in Compromise with the IRS?

Tax Debt Resolution Options

What is an Offer in Compromise?

Making an Offer in Compromise is one of the most well known methods to settling tax debt with the IRS. In case you have never heard of one or don’t know exactly what it is here is the basic scenario:

The IRS contacts you claiming you owe X number of dollars in say, undeclared income tax. You don’t have X dollars, and are currently unemployed, so there is very little chance that you will have X dollars in the foreseeable future. So, you want to offer the IRS Y number of dollars, with Y being some amount less than X. The IRS then has the option of accepting Y number of dollars in complete satisfaction of your tax debt. By filing an Offer in Compromise, you have just saved yourself Z number of dollars (the difference between X and Y).

However, as is often the case with the IRS, things are not that simple.

Why Would the IRS Accept an Offer in Compromise?

While the taxpayer saves money, the government loses money in an Offer in Compromise. So why would the IRS accept such an offer? There are a few reasons why the IRS makes available the Offer in Compromise process.

  • Congress decided that taxpayers deserve a clean start even if they have made mistakes in the past. With one of the requirements of being completely up to date with all your tax returns, Congress figured you deserve a chance to catch up after making sure you are in compliance.
  • Some taxpayers are “judgment proof”. If the IRS leans on you when you are already suffering financially, the only thing they may succeed at is crushing your finances completely. If you don’t have any money at that point, what can they get from you? As the saying goes, you cannot get blood from a stone.
  • There is a cost to enforcement. Taking taxpayers to Court and running audits costs money. It also costs time. In order to save themselves from having to incur the costs of enforcement and wasting the time of their already limited number of agents and attorneys, the IRS is willing to accept tax debt settlements for less.
  • The IRS is buying itself more time. While the Offer in Compromise is under consideration, the statute of limitations (amount of time the IRS has to collect) is tolled (does not expire).
  • Disclosure, disclosure, disclosure! While making the offer or convincing the IRS to accept it, the taxpayer might disclose some other facts the IRS can use against them.

How Does a Taxpayer Make an Offer in Compromise?

The short answer is you fill out IRS Form 656. However, an Offer in Compromise should not be submitted until you have a proper tax plan in place. You NEED to consult a tax professional before filing any documents with the IRS for a number of reasons. The majority of Offers in Compromise are rejected. Working with a tax professional can greatly increase your chance of success, or at least make sure the form is filled out properly.

If you are thinking of making an Offer in Compromise to the IRS or have tax issues that need to be addressed, please contact us to discuss your matter. We have helped multiple clients find tax relief through successful Offers in Compromise, and ar here to help you as well.