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Posted on Jan 21, 2009 in Offer in Compromise, Tax Q&A | 0 comments

Using Your Deed to Pay an Offer in Compromise

Question: Can I use the deed to a house we own free and clear to make an offer in compromise to the IRS for back taxes?

Answer: The short answer is no.  Basically, in determining whether you qualify for an offer in compromise, the IRS will examine you entire financial “self.”  You can kind of compare this to an audit.  The IRS will want to see a financial form (433-A for individuals) that shows all the assets that you own including real estate, stocks, bonds, checking accounts, cash, cash-value insurance, vehicles, etc.  You will also be required to show back up documentation for most of these assets as well as account statements for the past three months and receipts for payments that you have made.  You will also be required to disclose your monthly income and expenses to the IRS (as well as the income of any non-liable person who lives with you such as a non-liable spouse).

You will gather all of this information so that you can properly prepare your offer in compromise to the IRS.  Based on your particular financial information you will be able to determine the amount of your offer in compromise.

To get back to your specific question, if you own your home free and clear that will simply be a much larger amount that you offer the IRS for your offer in compromise because you have 100% equity in the home with no debt.  The IRS, however, will not want the deed to your house.  They are not in the real estate business.  They want the money you can get for the house.  So it will be up to you to either sell the house, refinance or take out an equity line on the house and give the IRS the proceeds.

Now, as a practical matter, I would not recommend that you immediately go out and refinance your house or put it on the market.  I would suggest that you do some research and make sure you will qualify for a refinance by speaking with several banks.  Then you can submit your offer in compromise and if it is accepted you can then go out and refinance your home or take out an equity line that you can then use to pay off your offer in compromise. But keep in mind that you only have a limited time after the acceptance of your offer in compromise to pay the full balance.