What is an Offer in Compromise?
An Offer in Compromise is an agreement between the taxpayer and the IRS that settles a tax liability, including all penalties and interest, for payment less than the full amount owed. The IRS has the authority to settle, or “compromise” federal tax liabilities by accepting less than full payment under certain circumstances.
Qualifying for an Offer in Compromise?
A tax debt can be legally compromised for one of the following reasons:
- Doubt as to Liability - Doubt exists that the assessed tax is correct.
- Doubt as to Collectability - Doubt exists that you could ever pay the full amount of tax owed.
- Effective Tax Administration - There is no doubt the tax is correct and no doubt the amount owed could be collected, but an exceptional circumstance exists. This could be an economic hardship or full payment would be unfair and inequitable.
Negotiating an Offer in Compromise
What many taxpayers don't realize is just about everything is negotiable with the IRS - if you know how.
The amount you owe may be reduced to an amount you can afford to pay with the help of our Tax Team. Preparing and successfully negotiating an Offer in Compromise is a very complicated process and can take longer than a year. We strongly recommend that you hire a local tax professional experienced in negotiating with the IRS, as your chance of success will be higher.
An Offer in Compromise is a complicated and time consuming process
Submitting an Offer in Compromise:
- Negotiations normally focus on the value of your assets (that's the amount the IRS believes they could collect from a quick sale
- Accurate documentation of your monthly income and living expenses
- $186 submission fee, however this may be waived in some cases
Processing an Offer in Compromise:
- The offer process may take 6 to 18 months depending upon a number of factors.
- Once your offer has been submitted to the IRS all collection activities against you stop
- It is important to note that the IRS has immediately began rejecting newly filed Offer in Compromise applications from taxpayers who have not filed all required tax returns. IRS Help, can assist you with settling back taxes or unfiled tax returns
- While the offer is under consideration, the IRS may require additional information. Failure to respond by the deadline will result in your offer being returned as unprocessed or rejected.
When the IRS is reviewing an Offer in Compromise, they will withhold collection activities:
- While they investigate and evaluate the offer
- For 30 days after they reject an offer
- While you appeal an offer rejection
Accepted payment methods for your offer in compromise settlement:
- Cash (paid in 90 days or less)
- Short-Term Deferred payment (more than 90 days, up to 24 months)
- Deferred Payment (terms over the remaining statutory period for collecting the tax)
Accepting an Offer in Compromise
The IRS will generally accept an OIC when it is unlikely that the tax liability can be collected in full and the amount offered reasonably reflects collection potential. An OIC is a legitimate alternative to declaring a case currently not collectible or to a “protracted installment agreement”. The IRS goal of an OIC is to achieve collection of what is potentially collectible at the earliest possible time and at the least cost to government.
When the IRS accepts your Offer and you pay it, then all federal tax liens are removed. You must remain compliant by filing and paying your tax returns for the next five consecutive years, or the liability will be re-assessed and all penalties and interest will be assessed as well.
IRS Forms needed for an Offer in Compromise Submission
The IRS requires a Power of Attorney form before they will talk to anyone other than you about your tax case.
- IRS Form 2848, Power of Attorney (POA)
- IRS Form 433A
- IRS Form 656
Find A Local Tax Professional Call 1-800-IRS-HELP
- Received IRS Letter
- Offer In Compromise
- Bank Levy
- Wage Garnishment
- Settle Back Tax Debt
- Installment Agreements
- Release IRS Liens
- Asset Seizure - Wages and Income
- Hardship Status
- Payroll Taxes and Trust Fund Penalty
- IRS Audits
- Innocent Spouse
- Tax Lien
- Discharges and Subordinations
- Tax Preparation
- Unfiled Tax Returns
- 165 Theft Loss
- Expatriate Tax Services