How does an Offer In Compromise work?

When taxpayers do not have the ability to pay a tax debt, the offer in compromise is a tool the IRS uses to reach a settlement. It is not easy to get approved and there is a complicated process that must be followed to obtain an approval. With the right help and resources, this is a manageable process and we can help get it started.

How to get an Offer In Compromise approved?

To start, the individual or business needs to make sure they have all tax filings and payments on existing plans current and up to date. The IRS requires this to make a determination of what they believe is a reasonable amount to settle your outstanding tax debts. Another requirement is not to be in an open bankruptcy proceeding. If you meet the prerequiste requirements for filing and being current, you must submit a:

• Form 433-A (OIC) (individuals) or 433-B (OIC) (businesses) and all required documentation as specified on the forms
• Form 656(s) – you must submit individual and business tax debt (Corporation/ LLC/ Partnership) on separate Forms 656
• $205 application fee (non-refundable)
• Initial payment (non-refundable) for each Form 656.

The chances to getting an offer in compromise approved are greatly increased by illustrating to the IRS all of the assets and debts that may prevent you from paying the entire tax debt.

Another important decision to make is whether you will make a lump sum payment or installment payments. Installment payments must be made while waiting to learn if your offer in compromise is approved or denied, and if it is denied these payments are non refundable and can be applied to your outstanding tax liability. These payments will reduce the debt at the very least.

If the IRS denies your offer in compromise, you are able to file an appeal within 30 days of this action. It is critically important to respond within the 30 day window and file a Form 13711 “Request for Appeal of Offer in Compromise”. If you need help with an offer in compromise, contact us today and we can discuss your specific tax case.