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Offer in Compromise for 2012 taxes payable I did my 2012 taxes

Offer in Compromise for 2012...
Offer in Compromise for 2012 taxes payable
I did my 2012 taxes and due to being unemployed for over a year I had to cash in IRA money last year to keep up the house payments. Consequently, I have over 10K in taxes payable for 2012 and have no money to pay it. My extended UI payments are due to run out in two months and then I'll have no income.

With credit card debt and a HELOC totaling about 190K and my savings pretty much drained, I was planning on filing chapter 7 bankruptcy next week and found out 2012 taxes are not dischargable with chapter 7. However, I believe I can file an Offer in Compromise to reduce that amount. Is it better to apply for this before or after filing chapter 7? If before, how long does it realistically take before I can file chapter 7 and how much can I realistically expect to have it reduced?
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Answered in 4 minutes by:
4/14/2013
cfortunato
cfortunato, Attorney
Category: Bankruptcy Law
Satisfied Customers: 8,023
Experience: Bankruptcy professor.
Verified

cfortunato :

Hi - my name is XXXXX XXXXX I'm a Bankruptcy and Consumer Protection attorney here to assist you.

cfortunato :

Did you already file your income tax return for 2012?

Customer:

No, not yet...I expect to mail it tomorrow (the deadline).

cfortunato :

Thanks for your response.

Customer:

Should I file for an extensiuon instead?

cfortunato :

You can have your 2012 tax debt discharged if you file a Chapter 7 after April 15, 2014.

cfortunato :

If you apply for an Offer in Compromise (OIC), you would then have to wait an additional amount of time to reflect the period during which the OIC is being evaluated by the IRS.

cfortunato :

This is because an OIC "tolls" the 2-year look back period for the discharge of income tax debt.

Customer:

I'm behind in my credit cards by 3-4 months and will take me to court if I don't file chapter 7 soon.

Customer:

Not sure I can wait until 2014

Customer:

The other issue is if I get a job in the next year, my income will likely be higher than the income to qualify for filing chapter 7 in WA

cfortunato :

Since you are not working (UI income is exempt [protected] from collection efforts), and unless you own valuable assets, there is really nothing your creditors can do to you if your wait 2 years to file.

cfortunato :

If your income is too high to file a Chapter 7, you may want to consider filing a Chapter 13 instead. In any event, it would be best to apply for an OIC while you have no income - after your UI stops.

Customer:

So...how long would I have to wait to file an OIC for 2012 taxes?

cfortunato :

Until you stop receiving UI.

cfortunato :

Actually, you do not have to wait until then, but having no income at all makes it easier to be approved for an OIC.

Customer:

ok...if I file chapter 7 now and it takes 100 days to complete, that would be around the time my UI is no more and that would be the time to file the OIC...correct? (Since I believe you can't file an OIC until chapter 7 is complet?)

cfortunato :

That is correct - you cannot apply for an OIC while you have a Bankruptcy case in progress.

Customer:

ok...what would be a realistic OIC amount to offer that would be accepted? I understand the average is about 17% of what is owed.

Customer:

I'll have no assets and no income around that time I suspect

Customer:

except a 2002 Honda and my personal items (clothes, laptop, etc)

Customer:

not sure how much cash...I have <10K in IRA left

cfortunato :

How much will you be owing to IRS?

Customer:

about 10.8K

cfortunato :

The general rule of thumb is the IRS wants as much as they can get - which would be all the money in your IRA account.

Customer:

my financial situation was exacerbated by a 2 year divorce that's just being completed now...finally

Customer:

great! :(

Customer:

I guess that means I should spend it now while I can LOL

cfortunato :

I was thinking the same thing, but cannot recommend that to you.

Customer:

I hear you ;)

Customer:

last questions...so if no IRA's by then...what's a reasonable offer...15? and how long would I have to pay that?

Customer:

15%

cfortunato :

The IRS will work with you. If you have no income and no assets, they can extend the payments for up to 5 years.

Customer:

very good! Thanks for all your help! Much appreciated!

cfortunato :

You're welcome!

cfortunato
cfortunato, Attorney
Category: Bankruptcy Law
Satisfied Customers: 8,023
Experience: Bankruptcy professor.
Verified
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cfortunato
cfortunato, Attorney
Category: Bankruptcy Law
Satisfied Customers: 8,023
8,023 Satisfied Customers
Experience: Bankruptcy professor.

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