At DiLucci CPA Firm, we’re all about making complex tax situations more understandable and less daunting for you. If you’re struggling with tax debts, you might be considering an Offer in Compromise (OIC) – a program that allows qualified individuals to settle their tax debts for less than the total amount owed. But here’s the big question: Can you apply for an OIC independently, or is it a path best navigated with professional guidance? Let’s break it down together.
Understanding the OIC Process
An Offer in Compromise isn’t just a simple form; it’s a detailed program with its rules and regulations. When weighing the possibility of applying for an OIC, it’s crucial to comprehend the process. The IRS takes a hard look at your financial picture — income, expenses, asset equity, and ability to pay — to decide if you genuinely can’t pay your total tax liability. It’s like a financial x-ray where they’re looking for your ability to pay now and in the foreseeable future.
Evaluating Your Financial Reality
Now, about your finances. It’s about more than how much you have in the bank today. The IRS examines your income history and projections, what you spend monthly on necessities, and what you own that could be used to pay your debt. The idea is to ensure that if you can pay your tax debt, you should. It’s all part of maintaining the tax system’s integrity and making sure help is available for those who genuinely need it.
Are Your Expenses Reasonable?
When you claim to the IRS that you cannot pay your tax debt due to your financial situation, the IRS will closely examine your living expenses. This scrutiny is not cursory; it’s thorough and personal.It highlights several key points:
- National and Local Standards for Living Expenses: The IRS does not simply take your word for what you consider to be necessary living expenses. Instead, they use established national and local standards to determine what counts as a “necessary” expense. These standards are designed to provide a baseline for what an average individual or family might need to spend on essential living costs in different country areas.
- Comparison with Spending Habits: Your actual spending habits are compared against these standards. If you’re spending more than what the standards consider necessary, the IRS may conclude that you can redirect some of your spending toward your tax debt.
- Distinction Between Necessities and Luxuries: The focus here is strictly on necessities – the basic expenses required for living, such as housing, food, clothing, and transportation. Luxuries or non-essential expenditures are not considered in this assessment. The idea is that money spent on non-essential items could instead be used to pay your tax debt.
- Potential Need for Financial Adjustment: If your living expenses exceed the IRS standards, you might have to adjust your spending. This could involve reducing or eliminating certain non-essential expenses to free up funds for your tax obligations.
- Negotiation and Agreement with the IRS: The final aim of this process is to agree with the IRS on your ability to pay. If your living expenses are reasonable and within the set standards, and you still can’t pay the tax debt, the IRS may be more inclined to agree to a payment plan or other arrangements.
In summary, this statement underscores the rigorous process the IRS employs to assess an individual’s claim of inability to pay tax debt, focusing on the necessity of living expenses and adherence to established financial standards.
Your assets aren’t just things you own; to the IRS, they represent potential tax debt payments. We’re talking about your house, your car, your retirement accounts, and even your Beanie Baby collection if it’s valuable enough. The IRS will appraise the equity in these assets to see if they could be sold or borrowed against to pay your debt.
When to Seek Professional Help
Applying for an OIC is like representing yourself in court — it’s legal, but it might not be wise. The process is intricate, and the stakes are high. As a full-service accounting firm, we’ve been working with Texans like you since 2005, crafting long-term relationships to maximize your financial empowerment. Whether it’s keeping the IRS at bay or providing regular accounting services, we’re here for the long haul.
Tax troubles can feel overwhelming, but remember, you’re not alone. At DiLucci CPA Firm, we’re here to lend our knowledge and support. With a focus on long-term growth and financial stability, we can help you assess whether an Offer in Compromise is the right move for you. So, don’t hesitate. If you need a guiding hand through your Tax, Accounting, or IRS matters, Call us at DiLucci CPA Firm at (972) 444-9934, or contact us online to schedule a consultation. We’re here to provide the help you need to return to the path to financial freedom.