Understand an IRS Offer in Compromise
Falling behind on your federal taxes can be a daunting experience. The IRS may aggravate the situation by imposing additional penalties and interest on an unmanageable tax debt. However, there is a potential solution to this problem in the form of an Offer in Compromise (OIC). An OIC is an agreement between you (the taxpayer) and the IRS allowing you to settle your tax debt for a lesser amount than you owe. The approval rate for an OIC is relatively low, around 30 percent, which makes it crucial to work with a tax professional who can provide you with the best chance of approval. It is important to select a tax professional who specializes in IRS collections to ensure that you receive appropriate and effective assistance.
Offer in Compromise Eligibility
Before submitting your offer, it is essential to ensure that you fulfill the following criteria:
1. You must file all tax returns you are legally required to file.
2. You must have received a bill for at least one tax debt included in your offer.
3. You must make all required estimated tax payments for the current year.
4. If you are a business owner with employees, you must make all required federal tax deposits for the current quarter and the two preceding quarters.
It’s important to note that the IRS generally does not accept an offer if you are able to pay your tax debt in full through an installment agreement or equity in assets.
Application
The application must include:
Form 656, Offer in Compromise
Completed and signed Form 433-A (OIC), Collection Information Statement for Wage Earners and Self-Employed Individuals, if applicable
Completed and signed Form 433-B (OIC), Collection Information Statement for Businesses, if applicable •
$205 application fee, unless you meet Low-Income Certification Guidelines.
Initial offer payment based on the payment option you choose, unless you meet Low-Income Certification Guideline.