Help for Feds Who Haven't Paid Their Taxes

By on March 9, 2012 in Current Events with 31 Comments

By Jeff Fouts

Jeff Fouts is a tax-efficiency enthusiast. If you are unable to pay your taxes, learn more about an offer in compromise and how an experienced tax attorney can help you.

Some of the most recent tax delinquency data show federal, postal, and
Congressional employees owe approximately $1.03 billion in unpaid taxes. If you add in federal retirees and military officials, the total nearly triples to 280,000 and $3.4 billion! 

If you are finding yourself trapped in this situation as a federal employee, what can you do?

Here’s What You can Do:  File an Offer in Compromise

An Offer in Compromise is a document allowing people who owe more taxes than they can pay to pay less than the full amount.  The IRS determines how much you can pay by examining the following:

  • Your income, which determines how much you can pay
  • Your current expenses
  • The equity of your current assets

While an Offer in Compromise can help you, the IRS only recommends it for people who actually need it.  Don’t file the document just to see what you can get. 

How Does this Document Actually Work?

As a federal employee, you are aware each document you work with has its own set of ins and outs.  And, this document is no different. 

Basically, the IRS determines what it calls your “reasonable collection potential.”  To the IRS, this means the amount of money they believe they can collect from you over the next 24 months. 

In order to qualify and keep your eligibility for an Offer in Compromise, you must file and pay your taxes on time for the next 5 years, pay the full amount the IRS determines, allow the IRS to retain all tax refunds you could possibly have received during the calendar year your Offer in Compromise is approved, and allow the IRS to keep all payments, credits, and refunds so they can be applied to your tax debts.

Can You Prepare Your Own Offer in Compromise?

You can prepare this document on your own, but the help of a professional accountant or attorney greatly improves your chances of success.  For your information, however, here are some of the documents the IRS requires you file:

  • IRS Form 433A and Form 656
  • Form 433B, 433A, and 656 for self-employed individuals
  • A statement indicating why you believe you are eligible to have your Offer in Compromise approved

Most Offers in Compromise are Not Approved!

Many shady professionals claim they can help you reduce your tax liability to almost nothing.  Beware of their promises.  For federal employees, it is possible to have an Offer in Compromise; however, most are not approved.

In 2004, the IRS approved just 16% of all requested Offers in Compromise.  During the first five months of 2010, just 24% of all requests were approved.

If you have a fairly extreme personal financial situation, you have a decent chance of having your Offer in Compromise approved.  Hopefully this brief guide will help you if you find yourself in this situation!

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