Preparing Offer in Compromise

Today TaxMama hears from Michael in AZ who’s grousing. “According to the IRS I owe over $10,000 dating back to 2000. I recently filed 2003-2007. My files show, before penalties and fees, approximately $8,000. I was told “less than 10% of those who self file for an offer in compromise get approved. several tax places wanted $2500 to do the offer. I can’t afford that. Can’t I do it myself?”

Dear Michael,

There is a some truth to what you’ve cited – the incidence of self-filed offers being accepted is low.

Why? Because individuals, who are not in the business of preparing offers day after day, don’t believe the instructions. They just can’t seem to get it into their heads that when the instructions tell them to include ALL the requested information with the offer, it MEANS include ALL the requested information, copies of documents, etc.

IRS rejects all incomplete offers. Period. So, if you want to do this yourself, fine. Do it.

But read the instructions in the Form 656 packet carefully. Perhaps three times.
http://www.irs.gov/pub/irs-pdf/f656.pdf

You don’t really need any other sites or advice. It really is all right there in the packet.

Then, gather all the information you need – copies of utility bills, bank accounts, insurance information, vehicle registrations – whatever applies to you. And gather the right number of months of each set of documents.

Prepare the correct forms – 433-A and/or 433-B to go with the 656.

And when you have them all gathered together, organize everything into a tabbed binder or folder so the IRS examiner can find each back-up document or sets of documents.

Then use the computation provided by IRS on pages 8 and 9 to determine how much your offer should be. It’s right there in the workbook. There’s no mystery.

Finally, make at least two extra copies of the entire set, in case IRS loses your precious file – and they have been known to do that.

And send it off to IRS via certified mail, return receipt requested.

If you can’t get everything together and some key bit of information is missing, don’t send in the offer.

a) IRS won’t accept it. Though you might get one shot to send additional information. You won’t be able to talk your way out providing something just because you can’t be bothered to take the time to track down the information. (IRS tells us that this is why most self-prepared offers get rejected.)

b) When you file an offer, you stop the clock on the 10-year statute of limitations that IRS has to collect. The clock stops for the entire time that the offer is open. It takes IRS quite a while to officially close the offer file. So you could be doing yourself double harm:

1) You’ve given IRS most of the information about where your assets are so they can seize them sooner.
2) You’ve just given IRS an extra year or so to collect from you.

So sure, do it yourself. But do it properly. And you’ll be just fine!

Remember – Mama knows best.

And remember, you can find answers to all kinds of questions about offers in compromise and other tax issues, free. Where? Where else? At TaxMama.com

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