You will need to eventually hire a professional arbitrator, such as a tax lawyer, to submit an accurate and acceptable Offer in Compromise to the IRS. However, there are some simple and essential things you can begin to do if an Offer in Compromise is a viable option for settling your debt to the IRS.
Get your finances in order and keep track of everything
You will need to have documentation of everything as far back as you can go—at least three month’s worth. That includes retirement accounts (401ks), credit card bills, receipts large and small, and old paychecks. Basically, you need to paint a complete picture of your expenditures that shows your inability to pay back your debt in full. Importantly, this picture needs to be consistent with your claims that you simply are unable to pay back your debt in full.
You should keep track of all your expenses by hand or use a computer program like Excel to record and monitor expenses. There are also spreadsheets designed to calculate OICs. This is a preliminary way of evaluating how the IRS will look at your situation and what they will accept.
Keep your taxes and books current
You will need to stay up to date with your tax returns and your income tax withholdings. You will also be required by the IRS to have copies of these records, as you will need them throughout negotiation proceedings. You cannot be in the process of declaring bankruptcy. Once you have properly established a short history of your expenses and have all your tax filings current, you can proceed to hiring a professional tax attorney. He or she will walk you through the next steps of properly filing an Offer In Compromise.
Remember, it is crucial you document your entire financial and tax life for at least three months. Painting a clear picture of you as a taxpayer is the best way to a successful OIC.