QUESTION:

I would like to file an Offer in Compromise to settle my tax debt, but I have heard that the IRS requires me to provide a lot of documents. It would be a huge hassle to try to put a lot of old documents together from the last few years. What types of documents do I have to provide, and how far back to I have to go?

ANSWER:

This is one point that I like to make with my clients at the very beginning of the Offer in Compromise journey. The IRS does ask for a lot of documentation to prove your financial situation. Sometimes it is a hassle to gather these documents, but you have to keep in mind that we are asking the IRS to settle your liability for sometimes tens of thousands of dollars less than you actually owe. So, what kinds of documents do you need to provide. Well, the first thing you will need to do is fill out a financial statement (Form 433). This form asks for you to provide a lot of documents such as proof of income, proof of household bills including house payments, rent, car payments, maintenance, health care costs, court ordered payments, and more. Sometimes your personal situation will require more documentation to be provided. The good news is you do not have to have several years worth of bills. Generally, you only need to provide the most recent three months. What is important to keep in mind is that based on the amount of time it takes to process an Offer in Compromise, you will most likely have to update this information in the future so be sure you begin to keep good records and keep these documents organized.