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IRS Offer In Compromise

An offer in compromise allows you to settle your tax debt for less than the full amount you owe.  It may be legitimate option if you can’t pay your full tax liability. Taxpayers are advised to consult with a tax attorney or CPA knowledgeable in this area of law. The Internal Revenue Service (IRS) will consider your facts and circumstances when reviewing your offer:

  • Ability to pay;
  • Income;
  • Expenses; and
  • Asset equity.

The IRS will generally approve an offer in compromise when the amount offered represents the most that  they expect to collect within a reasonable  time period.

Taxpayer must be current with all filing and payment requirements in order for the IRS to consider an offer.  Taxpayers who are in open bankruptcy proceeding are not eligible for the offer  compromise program.  The IRS does provide an Offer in Compromise Pre-Qualifier that is useful in confirming a taxpayer’s eligibility and for preparation of a preliminary proposal.

An offer is submitted by following the instructions and submitting the necessary forms and documentation as provided in the Offer in Compromise Booklet, Form 656-B. The completed offer package should include:

  • Form 433-A (OIC) (individuals) or 433-B (OIC) (businesses) and all required documentation as specified on the forms;
  • Form 656(s)–Individual and business tax debt (Corporation/LLC/Partnership) must be submitted on separate Form 656;
  • $150 application fee (non-refundable);
  • Initial payment (non-refundable) for each Form 656.

Taxpayer has two payment options :

  • Lump-Sum Cash.  Taxpayer submits an initial payment of 20 percent of the total offer amount with your application.  Taxpayer waits for written acceptance, upon acceptance he/she pays the remaining balance of the offer in five or fewer payments.
  • Periodic Payment.  Taxpayer submits initial payment with application and continues to pay the remaining balance in monthly installments while the IRS considers the offer.  If accepted, the taxpayer continues to pay monthly until the offer amount is paid in full.

While taxpayer’s offer is being evaluated:

  • Taxpayer’s payments are non-refundable and will be applied to the tax liability (you may designate payments to a specific tax year and debt);
  • A Notice of Federal Tax Lien may be filed;
  • Other collection activities are suspended;
  • The legal assessment and collection period is extended;
  • Taxpayer makes all required payments associated with offer;
  • Taxpayer is not required to make payments on a pre-existing installment agreement; and
  • Taxpayer’s offer is automatically accepted if the IRS does not make a determination within two (2) years of the IRS receipt date.

If taxpayer’s offer is rejected, then he/she may appeal within 30 days using Request for Appeal of Offer in Compromise.

If taxpayer’s offer is accepted, then the following takes place:

  • Taxpayer must meet all the Offer 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 taxpayer’s offer is accepted will be applied to his/her tax debt;
  • Federal tax liens will not be released until taxpayer’s offer terms are satisfied.

Bowman Law Firm