Steps to Filing an Offer in Compromise: Step 1 – Filing Back Tax Returns
So you owe the IRS a ton of money. You don’t have that much money to pay them. So what do you do? The answer is, you file an offer in compromise to settle the debt in full. An offer in compromise is an agreement between you and the IRS where the IRS agrees to take less than the full amount of the tax, penalties and interest that you owe for full satisfaction of the debt.
Sounds great, doesn’t it? So where do you start? The first thing you need to do is make sure all of your tax returns are filed. People that owe the IRS significant amounts of money tend to have messed up one year and then they were too scared to file the next year for fear that the IRS would find them or come after them. But, before the IRS will begin to work with you and consider your offer in compromise, you must have your tax returns filed for at least the last six years and you must be current on your current taxes. That means, if you should be paying estimated taxes – you should have paid in the correct amount depending on how far through the year we are. Make sense?
So, I can hear you asking the question: it has been so long since I have filed my income taxes. I don’t have any of my financial records for those years. How can I prepare my returns without my W-2’s and 1099’s?
Good question: You may request a printout from the IRS giving you all of the financial information sent to the IRS on your behalf. You can request that for as many years as you need (currently the IRS records only go back as far as 2000 – financial information for years earlier than that are no longer available). You then use this financial information to prepare your income tax returns (or more preferably, you hand the forms over to your accountant to prepare your returns for you).
Where do you get this information? Head on over to the IRS website and download Form 4506-T. You can also call the IRS or visit your local office if you need to get the information really quickly. Otherwise, when you mail in Form 4506-T it is going to take them a couple of months to get the information to you. Check out the video below to show you where to go to get the income information you need.
So get those tax returns prepared and then we will move on to step 2: finding out exactly what you owe the IRS. See you then!