Tax settlements as low as pennies on the dollars have been made, though the IRS has no obligation to accept such offers.
You can print Form 656, used for filing an OIC, from the IRS website, www.irs.gov. Or call (800) 829-1040.
The legal self-help site www.nolo.com gives a simple description of the pros and cons of filing an OIC.
The IRS lists five common errors taxpayers make when submitting an Offer in Compromise:
When you can’t even afford new tires, it’s hard to get excited about keeping up with your income tax bills. That’s been the case for many owner-operators who’ve been stretched to the breaking point for two years or more by expensive fuel and slow freight.
Many owner-operators in that boat used Tax Clearance Center in Roseville, Calif., to help broker a deal with the Internal Revenue Service. “In the past two years, we’ve filed more Offers in Compromise for owner-operators than in the previous five,” says Evelyn Fernandez, vice president of the firm’s tax resolution services.
An OIC is the IRS program in which a taxpayer who is clearly unable to pay a tax bill negotiates to pay Uncle Sam less than is owed. Sometimes quite a bit less.
“You’d be surprised,” Fernandez says. “On $30,000 or $40,000 debt, you can offer as little as $1,000 – or less if you don’t have anything.” The self-help legal site nolo.com says the IRS has settled for as little as 1 percent of a tax bill.
Even so, don’t get your hopes up. Howard Abrams of PBS Tax and Bookkeeping Services in Los Angeles, says he does some probing when an owner-operator requests an OIC filing, which involves extensive documentation. “I don’t want to start taking money, going through the whole thing,” he says. “I want to know it’s going to work.”
One critical aspect for filers is “income relative to their expense obligations,” Abrams says. In others words, the IRS assumes an owner-operator supporting a family of four has higher expenses than a single owner-operator.
The other major factor is assets. “If you can mortgage or sell to pay what you owe, they’re not going to accept less than what you’re worth,” says Fernandez. However, the IRS recognizes that an owner-operator has no income without his truck, so that usually does not get sold.
It takes about six to 12 months from submitting the OIC until a final deal gets approved, she says. Cases involving large amounts, such as more than $50,000, often take longer because they get referred to an investigative unit.
Fernandez’s firm also helps owner-operators work out payment plans with the IRS when it appears that income is steady and large enough to eventually pay off the debt. While such plans don’t reduce the tax bill, they can save money by eliminating penalties and interest that would otherwise mount up.
The cost for an OIC can start around $2,000 and go much higher for owner-operators who have more than one truck and have payroll tax problems, Fernandez says. However, the cost can be worth it “if you’re barely making it, and what you make, you’re spending,” says Fernandez. “This program gives you a fresh start.”