Iowa Offer in Compromise
An offer in compromise is when the Iowa Department of Revenue (DOR) lets you pay off tax liabilities assessed by the DOR for less than you owe if it is in the state's best interests. The Iowa offer-in-compromise program is similar to the Internal Revenue Service's offer-in-compromise program, but getting approved for an offer with the IRS does not guarantee that the State of Iowa will accept your offer.
For the best results, you should work with a licensed tax professional who has experience with the Iowa Department of Revenue. They will be able to help you assess your potential eligibility for this program and submit the required paperwork. You can use TaxCure to find a licensed tax professional by selecting the "Find a Local Tax Pro" button at the top of our site.
Iowa Offer-in-Compromise Review Process
When you apply for an offer in compromise in Iowa, the DOR takes a very detailed look at your income, expenses, assets, and liabilities. This information allows the state to assess how much they would be able to collect on the debt. Your offer has the highest chance of being accepted if it represents the most money the state could collect from you.
Generally, to assess your offer, the state looks at your assets and your disposable income. Then, it determines how much you could pay if you liquidate your assets and devote your disposable income to the offer. In most cases, Iowa will reject your application if your offer is less than this amount.
Here's a quick example. Imagine that you own a house with no equity, a vehicle to get to work, and a boat worth $10,000. You also have about $200 in disposable income every month. Say you offer $3,000 to settle your tax liabilities. In this case, the Iowa DOR will most likely reject your offer. The DOR will say that you can afford to pay more if you sell your boat and spend your disposable income on the tax bill.
On the other hand, if you offer $14,800 to settle your tax bill, the Iowa DOR may be more willing to accept your offer. This offer includes the value of your boat plus your monthly disposable income over two years.
Note that these are very basic examples to illustrate the type of review process that may happen when you apply for an Iowa offer in compromise. These examples do not claim to show actual situations where the DOR may accept or reject offers. The process varies depending on your situation.
Common Reasons for Iowa Offer in Compromise Rejections
If the state believes that you could easily pay the full tax liability, the DOR generally will not accept your OIC application. For instance, if you can pay the bill with the funds in your bank account or by borrowing from your retirement accounts, the state may not accept your settlement request. As indicated in the example above, the state may also reject your offer if you can pay off the whole liability by selling or borrowing against your assets.
Similarly, if the state sees that you can pay off the bill in monthly payments, it may also reject your offer. Even if you think that you can't afford monthly payments, the state may not agree. If the state thinks that you can change your spending habits or cut out unnecessary expenses, it may reject your offer and advise you to set up a payment plan.
To give you an example, imagine that you submit an offer-in-compromise application to the Iowa DOR, and in your expenses, you list that you spend $500 eating out every month or that you spend $400 on going to amusement parks every month. Generally, the state is going to say that these are unnecessarily lavish expenses, and the DOR will tell you to spend this money on your tax bills.
Additional Considerations for Iowa Offer in Compromises
However, the IA DOR doesn't just look at your finances. The state also considers if you have resolved the issues that led to the tax delinquency. For instance, if your tax debt was caused because you didn't make quarterly estimated payments, the state will be more likely to accept your offer if you are currently making estimated quarterly payments.
Before accepting your offer, the state typically requires you to be current on your state filing and payment obligations. If you have unfiled returns, you generally cannot get an offer in compromise in Iowa. The Iowa DOR also considers whether or not you have stayed on top of your tax obligations since you got behind.
For example, imagine that you're applying for an offer in compromise on Iowa taxes from 2016. For every year since then, you have filed your tax returns on time and paid in full. In this case, the state may be more willing to accept your offer than if you haven't been filing or paying.
Beyond that, the state considers extenuating circumstances. For instance, if you have a medical condition, the Iowa DOR will consider your situation when reviewing your offer in compromise.
How to Apply for an Offer in Compromise in Iowa
To apply for an offer in compromise in Iowa, you need to contact the Iowa DOR to ask for an offer-in-compromise booklet. Unfortunately, the state does not publish these forms on its website. You can request the forms on your own, or you can have an Iowa tax professional request them for you.
To get a sense of the information the state is likely to request, you may want to take a look at the offer-in-compromise application used by the IRS — Form 656-B (Offer in Compromise) application.
Again, note that the IRS and the Iowa DOR have different procedures and standards with their offer in compromise programs. This form simply shows you the type of detailed information you may need to provide about your income, expenses, assets, and debts when you apply for an Iowa offer in compromise.
What If the Iowa Department of Revenue Rejects Your Offer?
The Iowa Department of Revenue will send you a letter telling you if your offer was accepted or rejected. If the Iowa Department of Revenue rejects your offer in compromise, you can opt to have the payment applied to your bill or returned to you.
The DOR will return your application if you don't provide all of the required information. This is not the same as a rejection. If the DOR returns an incomplete application, you may be able to gather the required information and apply again.
What If the Iowa Department of Revenue Accepts Your Offer?
The Iowa Department of Revenue will notify you by mail if your offer has been accepted. The payment you send with your application covers your offer. Once your offer is approved, you no longer have the right to contest the tax bill or request a refund of the funds.
Iowa may require you to meet certain conditions after accepting the offer. For instance, many states require you to comply with future tax reporting and payment obligations after accepting your offer. If you don't, your offer may go into default.
The Iowa DOR doesn't publish these details on its website. This is just an example of a potential condition based on the rules in other states.
Why You Should Work With a Local Pro When You Apply for an Iowa Offer in Compromise
All over the internet and on TV and radio, national tax resolution companies offer to settle your taxes for less than you owe. Why should you hire a local Iowa professional?
There are several reasons. First, Iowa tax professionals will generally have more experience working with a local tax agency. In other words, dedicated experience with the Iowa DOR. They understand the rules and processes used by the IOWA DOR, and they have helped many Iowans apply for the DOR's tax resolution options.
Additionally, when you hire a local professional from Iowa, your case gets the individualized attention that it deserves. You get to work directly with a Certified Public Account (CPA), an enrolled agent, or a tax attorney. They can answer your questions and are bound by professional guidelines that ensure they're ethical.
In contrast, with many of the national firms, your first point of contact, and sometimes your only contact, is with a salesperson. They aren't bound by ethical guidelines. As a result, they often overpromise and deliver subpar results for their clients. To protect yourself and your assets, you should work with an Iowa tax professional with in-depth experience with the Iowa offer-in-compromise program.
Get Help Applying for an Iowa Offer in Compromise
You can use TaxCure to search for a local Iowa tax professional. You can also break down the results to find a local tax pro with the needed experience. Then, you can read about the options and reach out to the pros directly.
To get help dealing with your Iowa back taxes, search for a local tax professional today. They can start with a free consultation and help you decide the best resolution option for your Iowa tax problems. Even if you don't qualify for an offer in compromise, there are other resolutions available.