Filing for an Offer is a notoriously difficult process. There are numerous forms, paperwork and documents to contend with. However, it's worth the effort to submit an Offer in Compromise (OIC) if you qualify. Why pay for the debt in full if you can pay for a fraction of it instead? The IRS will accept a fraction of what is owed if a taxpayer can prove to the IRS that they are very unlikely to ever collect the total amount owed, even if they were to use forced collection mechanisms.
Determine if you qualify for an Offer in Compromise. Here are a few ways taxpayers can qualify for an Offer in Compromise.
- You cannot pay the full amount on your tax debt without facing a financial hardship.
- You have a special hardship circumstance (i.e., illness, fixed income).
- You are not liable for the tax debt.
Gather required Offer in Compromise forms and complete them. When submitting an Offer in Compromise you need the most current versions of the following:
In most cases, you'll also need:
- IRS Form 433-A, Collection Information Statement for Wage Earners and Self Employed Individuals, and/or
- IRS Form 433-B, Collection Information Statement for Businesses
Pay the application fees. You are required to pay an application fee of $150 when you submit your Offer. The application fee is nonrefundable, and the IRS will return your Offer if the application fee is not included.
Complete check list for success before submitting. Make sure you've completed all of the following to ensure success when submitting your Offer to the IRS.
- Investigate all options: Explore all options for paying your debt before submitting an Offer.
- Complete all items: Don't leave any lines blank on IRS form 656, Offer in Compromise
- Submit documentation: Gather physical evidence providing why you cannot pay your tax debt in full.
- Include fees and payments: You must include all required fees and payments or your Offer will not be processed
- Be current: You must be current with all of your tax filings and remain current while your Offer is being approved.
Determine your Offer in Compromise payment method. There are three different options for paying off the Offer in Compromise once it is accepted by the IRS. Below are the three different methods.
- Lump Sum Cash Offer: This method requires you to pay off the Offer in five or less separate payments, each one equal to or greater than 20% of the offer.
- Short Term Periodic Payment Offer: You must pay off the entire Offer amount within two years from the day the IRS received the Offer. The first payment is due at the time the IRS form 656 is filed with the IRS. Then regular payments will be required as the IRS evaluates your case.
- Deferred Periodic Payment Offer: Under this payment method, the IRS must be paid the entire Offer amount over the remaining statutory period of the IRS debt. The first payment must be made with the submission of the IRS Offer in Compromise form and then more payments must be made while the IRS evaluates the case.
The payment installments you make to the IRS are nonrefundable. You don't want to lose a significant amount of money getting your Offer approved if you don't qualify, so be sure to fill every blank on Form 656 and provide as much supporting documentation as possible.
BackTaxesHelp.com has a diverse tax team of tax professionals that can help file your offer in compromise. Visit our site to find out more information on filing an OIC and request help from our tax professionals if you need help and IRS representation.
The majority of Offers submitted to the IRS are denied. If you know you took the proper steps when you submitted your Offer but it was still denied, consider working with a professional that can guide you in the right direction.