A Offer in compromise (OIC) has more negatives than a bankruptcy. Still, the choice of one or the other depends on your specific circumstances, so you should communicate with to a qualified bankruptcy attorney before deciding. This is what is recommended.
In most cases, It is advised you to file for bankruptcy first, as it safeguards you from IRS liens, encumbrances, lawsuits, liens, and seizures. After the bankruptcy court discharges your debts, you may have some taxes that you still owe. This is when it is suggested that you file an OIC and settle an IRS settlement for taxes due.
Clearly, this is a complex area of law, so you should be open-minded and consult a qualified bankruptcy attorney who can help you make an informed decision. You are always welcome to call me and tell me about your situation.
Bankruptcy:
Good news:
·Some types of taxes can be completely erased in bankruptcy.
·If taxes can be erased, they are guaranteed to be erased.
·A Chapter 7 bankruptcy can usually be completed in approximately 4 months.
Not so good news:
·Your bankruptcy will be shown on your credit report.
·A tax lien will survive the bankruptcy and will be attached to whatever capital you had before the bankruptcy.
·An OIC will not enter your file at the credit bureau.
·All tax privileges are removed as soon as you pay your settlement.
Not so good news:
·The settlement amount is what you discuss with the IRS. The law does not allow settling for $ 0. And if your offer is accepted, it’s only at the discretion of the IRS. Remember that even if your presentation to the IRS is perfect, it could be rejected.
·It can take up to six to nine months for the IRS to accept your OIC. If you go through the IRS Appeals process, the process could take more than a year.
Key factors to consider before submitting a compromise offer
1.You must sternly adhere to the terms of the commitment offer for five years before it is final. The IRS makes sure that you follow the agreement to the letter for five years. The IRS has the legal right to revoke your OCI if you owe up to one cent for a specified period. Once revoked, then all tax liability falls on you.
2. An OCI suspends the statute of limitations for the IRS to tax you. The IRS has ten years from the assessment date to collect the taxes you owe. An OCI, however, suspends the statute of limitations. This means that if it has been five years since the IRS reviews taxes against you, then the IRS still has five years to collect taxes from you. And even if you file an OCI now and the IRS needs a year to consider it, the IRS will still have five years to tax you if your OCI is rejected.
3. Once the IRS accepts your OIC, you cannot further challenge the amount committed in court. This means that if your OCI is accepted, you cannot contest the original amount that the IRS says you owe.
4 The law permits the IRS to keep all past payments. When you file an OIC, you must either make a down payment or start making monthly payments, depending on the OCI you submit. If the IRS rejects your OCI, this means that they can keep all the money you paid during the review time, if you were required to pay. Also, if you are owed a tax refund in the same year that your OCI is accepted, the IRS will keep your refund and will not credit the amount to the OCI. Instead, your refund amount will go toward your delinquent tax liability.
5. You can transform some of your committed taxes into taxes that cannot be released. If you file an OIC, you may cause a tax liability that may have been discardable and may now become non-dispensable, unless the prescribed time for tax assessment has expired. The normal period for taxes to become non-taxable is within 240 days of filing for bankruptcy. When you send an OIC, the term is extended to 270 days plus the number of days that the OIC is pending.
What then is right for you?
Make sure you contact a qualified attorney who can help you weigh the pros and cons of an OIC in your situation.
Bankruptcy is generally a good choice in these circumstances:
·When taxes are discharged, and you have to file bankruptcy due to other creditors.
·When taxes are cleared, and the IRS has denied your OIC.
A compromise offer is generally a good choice in these circumstances:
·If taxes are the only debt you are concerned about.
·If you are concerned about what bankruptcy will do to your credit score.
·If you want to get a federal tax lien.
Both methods offer protection.
An OCI offers many of the same protections as bankruptcy. By law, once an OCI is submitted for consideration, the IRS cannot issue new liens or liens against you. In addition, we can take other steps to release existing liens and liens after an OIC is saved.
Can I file a compromise offer and file bankruptcy?
Not all at once. The IRS will not consider your OCI while you are bankrupt. This means that if you want to file as much, you must do so sequentially.
If you file bankruptcy in the first place, you cannot file an OIC until after your bankruptcy has been discharged.
If you file an OIC, then you cannot file bankruptcy until your OCI has been accepted.
If you have filed your OCI but it is still under consideration, and you are filing for bankruptcy while the OCI is being considered, the IRS will reject the OCI and you will have to wait until your bankruptcy has been completed before submitting a new OCI.
And if your OCI is accepted, and then you file for bankruptcy before paying your OCI, the IRS will file a tax claim for the full amount due during the bankruptcy proceeding.
The only reason to file an OCI and bankruptcy is if the taxes cannot be filed for bankruptcy.
Recommendation
In most cases, It is advised that you to file for bankruptcy first, as it safeguards you from the IRS from liens, liens, lawsuits, liens, and seizures. After the bankruptcy court discharges your debts, you may have some taxes that you still owe. It is suggested at this point that you file an OIC and settle an agreement with the IRS for taxes due.
Apparently, this is a complex area of law, so you should be open-minded and consult a qualified bankruptcy attorney who can help you make an informed decision.
