My experience with IRS tax debt settlement and the IRS Offer in Compromise!

I am going to share something very personal and, quite frankly, embarassing with you.  Simply because I know how it is when you feel lost and the only thing that would make you feel better is to talk with someone who has gone through what you are.  I want people to know that you really can, as they say, “settle your tax debt for pennies on the dollar”.

I got myself into some tax trouble with the IRS many years ago.  I was self employed and working a job making pretty good money.  I was really bad about making estimated tax payments and when I filed my taxes I owed way more then I expected.  Shortly after that, I had to quit that job because of medical and personal reasons and I was never able to pay all the money back.  The next couple of years I had to add to that tax debt from the smaller amount of income I had made.  When it was all said and done, with all the penalties and fees, I ended up with about $30,000 in tax debt and two IRS tax liens. 

The IRS then tried to attach my debt to my husband in error (we were not married when I accumulated the debt) and put a tax lien on him.  I explained this in a previous blog and what we had to go through to get it removed.

While I owed my tax debt, I was able to have the IRS place me into a “currently noncollectable” status.  If you are not making enough money to make ends meet then they will put you in this status and stop the collection process.  However, when I first did this I was not aware that it automatically means they will place a lien against you.  Needless to say I was extremely mad about that, but it was too late.

I kept saying for years that I needed to file an IRS Offer In Compromise and try to settle my tax debt, but I kept putting it off thinking I needed a lawyer to file and that I couldn’t afford it.  Finally I realized I would never be able to afford a lawyer (I was quoted $1,500 here in Ohio) and decided to try to file the Offer In Compromise myself.

The application and information for the Offer In Compromise is on the IRS website here…

http://www.irs.gov/businesses/small/article/0,,id=104593,00.html

At first, the application and process looked a bit scary.  I was afraid that if I did it myself I would mess up and be denied and it would be all my fault.  But after looking into it, many times, I realized it’s all common sense really.  It was a lot of work for me because of the line of work I am in.  But I took it slow and carefully and finally managed to put the whole thing together and send it in. 

When choosing your settlement options, be realistic.  If you make some money and they know it… offer to pay something.  Do not offer to pay $0 unless you truly are in a bad financial situation.  I have very little money, but offered to pay $100 lump sum, to be paid within 5 months.  It’s not much, but I at least showed some effort.

Also note that there is an application fee.  This fee can be waived if you can prove you are below their income guideline.  I was able to get this fee waived.

What the Offer In Compromise does is allows you to attempt to settle your tax debt for a lesser amount with the IRS.  You can choose from payment plans or lump sum payments.  It’s based off of your current income/assets, your past income, your current life situation/health, and the likelyhood of them collecting on your debts in the future.  You must be current on your taxes for the present year and promise to file on time and pay your taxes from that point on for 5 years.

I hadn’t made much money in several years.  So little that I wasn’t required to file estimated tax payments.  I had also been in a car accident that caused neck problems and suffer from anxiety disorder.   So I had to send in all my medical records and income verification.  The key here is to show you have a reasonable explanation for having the tax debt, that you can’t pay it now, and that you also have a likelyhood of not being able to pay the debt within the statute of limitations time frame.

Be sure to send your application certified mail with delivery confirmation!  They do have timelines they have to follow for processing your application initially and they tried to screw me around and drag it out.  They tried to claim they received my documents a month later!  Because I had that delivery confirmation, it saved me from having to wait longer.  It does take time though.  Also, never send original documents!  Send copies!

Be sure to call the IRS occassionally and make sure everything is going as it should.  Be sure to ask them how long they will take to get through each step.  Make notes of the dates they give and your conversations.  Also note the dates of every call, date you mailed something, and date you received something from them.  It may come in handy (it did for me).  They asked me many times for the dates that this or that happened.

I sent my Offer In Compromise application in to the IRS and got delivery confirmation on April 20th, 2009.  Tack your package with the delivery confirmation, wait a couple days after delivery, then call the IRS to confirm they received it.  If they say no, tell them about the delivery confirmation.  They have a screening process to make sure you meet their requirements for the OIC.   

I then got a package from them dated May 12th, 2009 requesting additional information.  Some of the things they requested I had already sent so rather then argue the matter, I sent them again with an explanation that I had sent them before as well.  I gathered everything else and sent it too.  It went out to them May 20th, 2009 and it was confirmed May 22nd.  From this point it was a waiting game.  They do not give you any time frames after this point.  However, I kept calling anyway to check the status.  It’s best to be proactive.  I made it past this screening which took 4 weeks, give or take.

The next step was to assign my application to a case worker (whatever they’re called).  It seemed like forever before I was assigned one.  This happened about the 3rd week of August 2009.  When I called the IRS, they told me the name and phone number of the case worker and I was able to call her directly.  She explained to me that she had to review everything and gave me a timeframe.  We spoke many times over the next week about my life, my income, and the application.  About two weeks later, she finally told me that she was going to recommend the application be approved, but I had to send in a revised application because I made one mistake on it.  So note, if you mess up, you have an opportunity to correct it and they will help you.  I sent the revised application via fax to her September 31, 2009

So the next step was for her manager to make the final decision and sign off on the application.  My case worker gave me a timeframe for this as well.  I called back a week later and was told it was officially approved.  I received my Offer In Compromise settlement approval letter on September 10th.  Now all I have to do is pay the $100 lump sum I offered within 5 months of the date on my approval letter.

I was told that I will get a letter of lien release in the mail.  Then it’s off to battle the credit bureaus to get that updated!

So to recap…

4/20/09 – Offer In Compromise application delivery confirmed.
5/12/09 – Received request for additional information.
5/22/09 – Requested info sent back and delivery confirmed.
5/2009 (end of month) – Passed initial screening.
8/2009 (mid month) – Assigned to case worker.
9/2009 (first week or so) – Approved by case worker and sent to manager for approval.
9/10/09 – Received OIC approval letter!!!  Woot woot!

Sooo… the whole process took about 5 months.  Not bad.  I thought it would take a year or more.

My initial tax balance was about $30,000 and I settled for $100!

I can’t adequately explain how happy I am.  I cried when I knew it was approved.  I feel like a dump truck has been lifted off my shoulders!  So those lawyers you see on tv are not lying about settling for pennies of the dollar.  Granted, it’s different for everyone.  You have to prove to them it’s worth it to approve you.  And I want to say, do not think you HAVE to have a lawyer to file for you.  You can do it yourself if you go slowly and carefully.  Take your time.  Double check everything 5 times before you send it!  You should do ok.

Good luck to anyone going through this!!  If you are, please share your experiences here!