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Tax Debt Pros

Offer in Compromise

Offers in CompromiseThe IRS has a program named “Offer in Compromise” (OIC) that allows the IRS to compromise outstanding tax liabilities with a financially burdened taxpayer for often less than the amount they owe to the Federal government. When the IRS accepts an Offer in Compromise they allow the taxpayer to pay what they can afford and the remaining balance is canceled. The taxpayer is then said to be in good standing with the IRS again

The IRS sometimes permits individuals to resolve their taxes owed for less because in certain circumstances they stand to collect more from a taxpayer by having them pay a portion of what they owe as opposed through enforced IRS collections. In other words, the IRS will only accept an Offer in Compromise if they feel that your offer is equal to or greater than the amount they would ever collect from you, even if they used forced collection methods.

Qualification for an Offer in Compromise

The IRS only permits individuals that meet specific requirements to compromise their taxes through the OIC program. There are three different types of circumstances in which a taxpayer will be considered for an Offer in Compromise.

Doubt as to Collectibility

You’ll qualify for this option if you can provide evidence that you don’t have the ability to pay the tax debt and can show the IRS that it’s likely they will never be able to collect the full amount. The IRS uses a series of guidelines to establish what expenses can and cannot be considered in calculating how much the taxpayer is reasonably able to pay.

Doubt as to Liability

To qualify for this condition a taxpayer needs to provide evidence that the assessed tax liability is incorrect and therefore they should not be required to pay the full amount. If the IRS had issued notices of assessment and the taxpayer failed to take action to dispute the tax liability at that time, or if the matter has already been contested during an audit, you will not qualify for this type of tax relief.

Effective Tax Administration

There is no doubt to the amount that is owed, but there are certain circumstances that exist in the particular case that if the IRS were to collect the taxes owed it would create financial hardship or would be unfair and inequitable to the taxpayer. The IRS refers to this as effective tax administration.

Additional Requirements for an Offer in Compromise

If a taxpayer meets any of these three circumstances, there is a chance they may be eligible to receive an offer in compromise settlement. Below are some additional requirements needed in order to qualify for an offer in compromise:

  • Cannot be currently going through bankruptcy
  • Taxpayer must have filed all federal tax returns that were required for prior years
  • If a business, must have filed payroll tax returns for prior two quarters.
  • Must pay the Offer in compromise application fee of $186 in order for the request to be processed
  • Must submit the proper offer in compromise documentation

Filing for an Offer in Compromise can be very tedious and it is highly suggested for taxpayers that feel they may qualify to use the services of a tax debt expert at Tax Debt Pros. To establish whether or not your specific set of circumstances falls into one of the categories above requires the expertise of our staff at Tax Debt Pros so call us at 801-878-0363 now to schedule a free initial consultation.

Paying for Your Offer in Compromise Settlement

Once the OIC has been accepted there are three different ways to pay for your settlement. You can choose from the three different methods depending upon your current financial situation.

Lump Sum Cash Offer

This requires a payment of 20% of the offer along with the $150.00 application fee. The offer must be paid in five payments or less and within five or fewer months of the date the offer is accepted.

Short Term Periodic Payment Offer

The Offer amount must be paid within 24 months of the date the IRS receives the Offer. The first payment is due when you file Form 656, and regular payments are required while the IRS investigates your case.

Deferred Periodic Payment Offer

The Offer must be paid over the remaining statutory period on the tax debt. The first payment is must be submitted with Form 656 and regular payments must be made with the IRS investigates 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 in every blank on Form 656 and provide as much supporting documentation as possible.

This type of filing can be very difficult to get approved if you do not fully understand it. The IRS intentionally makes this filing difficult, which is why it is highly suggested that you consult with a tax professional before submitting for an Offer in Compromise.

Work with a Trusted Tax Professional

Beware of deceptive claims to settle your tax debt for “pennies on the dollar”. At Tax Debt Pros we are trusted tax professionals experienced in filing legitimate offers with the IRS. We understand what kind of evidence needs to be presented in order to furnish an offer that the IRS will accept so you can reduce your tax debt. Contact us at 801-878-0363 today to learn more.

Offer in Compromise Frequently Asked Questions (FAQs) >>