An offer in compromise is a key tool in our tax relief arsenal. It allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can’t pay your full tax liability, or doing so creates a financial hardship. When working with you to see if you qualify, we consider your unique set of facts and circumstances:
- Ability to pay;
- Expenses; and
- Asset equity.
The IRS usually approves an offer in compromise when the amount offered represents your “reasonable collection potential” which is the most that they can expect to collect within a reasonable period of time.
Make sure you are eligible
Before we can consider an offer in compromise, all of your back taxes must be filed; you must be current on any estimated tax payments and your W2 withholding must be set to the correct amount. The IRS will return any newly filed Offer in Compromise application where the taxpayer has not filed all required tax returns. Any fees included with the offer in compromise will also be returned. This policy does not apply to current year tax returns if there is a valid extension on file. You are not eligible if you are in an open bankruptcy proceeding. We will gather information about your current income and expenses to determine if you potentially qualify for an offer in compromise.
Submit your offer
Once we have determined that you are qualified for an offer in compromise, we will complete a Form 433-A (OIC) (individuals) or 433-B (OIC) (businesses). We will also complete Form 656(s) – for individual and business tax debt. Unless you meet the low-income certification guidelines, you will have to pay a $186 application fee (non-refundable); and submit the non-refundable initial payment for each required Form 656.
Select a payment option
Your initial payment will vary based on your offer and the payment option you choose:
Lump Sum Cash: If you choose this option, you must submit an initial payment of 20 percent of the total offer amount with your application. Wait for written acceptance, then pay the remaining balance of the offer in five or fewer payments.
Periodic Payment: Submit your initial payment with your application. Continue to pay the remaining balance in monthly installments while the IRS considers your offer. If accepted, continue to pay monthly until it is paid in full.
If you meet the Low Income Certification guidelines, you do not have to send the application fee or the initial payment, and you will not need to make monthly installments during the evaluation of your offer. See your application package for details.
Understand the process
While your offer is being evaluated:
- Your non-refundable payments and fees will be applied to the tax liability (you may designate payments to a specific tax year and tax debt);
- A Notice of Federal Tax Lien may be filed;
- Other collection activities are suspended;
- The legal assessment and collection period (statute of limitations) is extended;
- You must make all required payments associated with your offer;
- You are not required to make payments on an existing installment agreement; and
- Your offer is automatically accepted if the IRS does not make a determination within two years of the IRS receipt date.
If your offer in compromise is accepted
- You must meet all the Offer in Compromise Terms listed in Section 8 of Form 656, including filing all required tax returns and making all payments;
- Any refunds due within the calendar year in which your offer is accepted will be applied to your tax debt;
- Federal tax liens are not released until your offer terms are satisfied; and
- Certain offer information is available for public review at designated IRS offices.
If your offer is rejected
We will discuss appealing the rejection. Note that an appeal is not included within our flat fee. The appeal must be filed within 30 days using Request for Appeal of Offer in Compromise, Form 13711.