Offer In Compromise Relief
What Is Offer In Compromise Relief?
An accepted offer in compromise is essentially a payment plan that settles State and IRS personal, payroll and other business related taxes for less than the full amount of accumulated IRS or State back taxes, late penalties and interest.According to the IRS website An offer in compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can’t pay your full tax liability, or doing so creates a financial hardship. We consider your unique set of facts and circumstances:
- Ability to pay;
- Income;
- Expenses; and
- Asset equity.
We generally approve an offer in compromise when the amount offered represents the most we can expect to collect within a reasonable period of time. Explore all other payment options before submitting an offer in compromise. The Offer in Compromise program is not for everyone.
How Can I Qualify For Offer In Compromise Relief?
IRS and State revenue agents are authorized to accept an offer for less than the full amount of taxes owed, based on one of three grounds.
- By establishing that you have become overwhelmed, beyond your capacity to pay the full amount of your State or IRS tax liability (doubt as to collectability).
- By establishing that you do not owe the back taxes, based on a provision of law (doubt as to liability).
- When collection potential is greater than the liability, but there are innocent spouse issues or other public policy considerations that would deem collection, as unfair (effective tax administration).
Can Businesses File An IRS Offer In Compromise?
The IRS has an Offer in Compromise for businesses called the In-Business Offer in Compromise. This is the most difficult Offer in Compromise to negotiate and will require the help of an experienced tax consultant. The main difference between an Offer in Compromise for an individual and an Offer in Compromise for a company is that the IRS will require a Company to pay at least the Trust Fund portion of taxes in any settlement (the amount that was withheld from employee paychecks in the case of back payroll taxes).
How is an Offer in Compromise Calculated?
Your Offer in Compromise tax settlement is calculated using a complex formula taking into account the equity in your assets and projected future income. We have detailed, free information on our website to help further understand how an OIC works.
Should I Apply For An Offer In Compromise?
There are many factors you should consider before applying for an OIC. Here are the steps according to the IRS.
Make sure you are eligible
Before we can consider your offer, you must be current with all filing and payment requirements. You are not eligible if you are in an open bankruptcy proceeding.
Submit your offer
You’ll find step-by-step instructions and all the forms for submitting an offer in the Offer in Compromise Booklet, Form 656-B. Your completed offer package will include:
- Form 433-A (OIC) (individuals) or 433-B (OIC) (businesses) and all required documentation as specified on the forms;
- Form 656(s) – individual and business tax debt (Corporation/ LLC/ Partnership) must be submitted on separate Form 656;
- $150 application fee (non-refundable); and
- Initial payment (non-refundable) for each Form 656.
Select a payment option
Your initial payment will vary based on your offer and the payment option you choose:
- Lump Sum Cash: Submit an initial payment of 20 percent of the total offer amount with your application. Wait for written acceptance, then pay the remaining balance of the offer in five or fewer payments.
- Periodic Payment: Submit your initial payment with your application. Continue to pay the remaining balance in monthly installments while the IRS considers your offer. If accepted, continue to pay monthly until it is paid in full.
If you meet the Low Income Certification guidelines, you do not have to send the application fee or the initial payment and you will not need to make monthly installments during the evaluation of your offer. See your application package for details.
Understand the process
While your offer is being evaluated:
- Your non-refundable payments and fees will be applied to the tax liability (you may designate payments to a specific tax year and tax debt);
- A Notice of Federal Tax Lien may be filed;
- Other collection activities are suspended;
- The legal assessment and collection period is extended;
- Make all required payments associated with your offer;
- You are not required to make payments on an existing installment agreement; and
- Your offer is automatically accepted if the IRS does not make a determination within two years of the IRS receipt date.