When a tax bill is more than an individual can financially afford, it may be possible to file for an offer in compromise. An offer in compromise is an agreement between the Internal Revenue Service and a taxpayer. This program settles the taxpayer’s liabilities for less than the total amount owed. This option is for those who cannot pay the tax bill in full or doing so would create a severe financial hardship.
No matter what the reason is for not being able to pay a tax bill in full, the IRS will take necessary actions to collect the money owed. Some methods of collecting the debt include garnishments, tax liens and a tax levy. Collection attempts will continue until the debt is paid in full or the taxpayer has come to an agreement with the IRS to pay or settle the debt. An offer in compromise is one way to settle the debt and get relief from IRS collection activities.
When applying for an offer in compromise, the IRS looks at a variety of factors. Qualifying for this program is based on an individual’s ability to pay, income, expenses and equity in assets. In many cases, the offer in compromise could be acceptable when the IRS realizes the amount of money offered in the settlement is the maximum amount they can possibly collect.
Before filing for an offer in compromise, the taxpayer should research to make sure that they do qualify for this program. If eligible, the next step is to prepare and submit a full financial statement and offer in compromise Form 656. When filing for an offer in compromise, include any and all documentation that can support the case for requesting an offer in compromise such as proof of income, expenses and other required financial documents. The completed offer in compromise package includes the necessary IRS forms 433A-OIC and Form 656, application fee initial 20% down payment and financial supporting documents. If qualified for a low-income exclusion or a waiver, the application fee and the initial down payment could be waived.
Once an offer in compromise is approved, how the taxpayer pays the accepted offer amount will vary on the agreement and payment option selected. Payment options include a lump sum cash offer or periodic payment offer. Periodic payments are usually made on a monthly basis.
If approved, any tax refunds owed within the calendar year in which the offer in compromise is approved will be applied to the total back tax debt. If a tax lien has been filed, it will not be released until the terms of the agreement have been satisfied. If the offer in compromise terms get defaulted, collection attempts may start again. However, once the total accepted offer in compromised amount gets paid, the tax debt will be written off or satisfied.
If the offer in compromise offer is rejected, the taxpayer has 30 days to request an appeal. When filing an appeal, it may be best to seek the assistance of a tax professional or expert.
Those who require help with filing for an offer in compromise with Internal Revenue Service may want to seek assistance of a qualified tax professional. The qualified tax professional will review your financial situation to determine if you qualify for the offer in compromise program. If an offer in compromise is not the best option, the tax professional can help determine if there is a better program available to resolve the IRS back taxes.