Posted by Fletcher Accounting and Tax Service Inc.

How to Settle tax Debt With the IRS Using an Offer in Compromise

How to Settle tax Debt With the IRS Using an Offer in Compromise

You can settle your tax arrears with the IRS for a smaller amount than you owe, using an OIC (Offer in Compromise). Nonetheless, you have to demonstrate that the smaller amount you pay is all you can afford.


Settling tax Arrears in Seven Easy Steps

-Firstly, you submit an OIC application with Form 656.

-You will be charged a fee of $186 to make your application.

-You have to give a complete financial disclosure, which reveals all your expenditure, income, equity and assets.

-Self-employed workers and employees have to fill out a 'Collection Information Statement' (Form 433-A) and provide supporting paperwork.

-Your application materials will be reviewed by the IRS and, if they are approved, settlement negotiations will start.

-You will reach an understanding with the IRS, regarding how much of your backdated tax you should have to repay.

-After this is agreed, you are given twenty-four months to settle your debt.


Every subsequent year, you have to carry on filing taxes. If you are refunded from filing in that twenty-four-month timeframe, the IRS counts this as part of your settlement.


Eligibility for Settling tax Arrears

Demands

-You must have current tax filings.

-You must have a minimum of one bill relating to the tax arrears you wish to feature in the offer.

-All necessary tax payments have to be made for the present year.


Limitations

-You are involved in open bankruptcy proceedings.

-You are classed as having the ability to repay the total amount by the IRS, via an IA (Installment Agreement).

-You own assets with equity, which can be used to repay backdated tax in full.


If you do not have current tax returns, and you are not up to date with the current year's payments, the IRS just sends your offer back.


Settling tax Arrears on Your Own

When filing an OIC, there are a couple of options open to you. You could hire a tax arrears resolution company, or you could attempt to file by yourself. If you wish to settle tax arrears on your own, just get hold of Form 656 from the IRS. This also includes Form 433-A, which you have to complete to disclose your financial details. Fill out these forms, then mail them to the IRS to file by yourself.


Dangers of Settling tax Arrears by Yourself

You have to fully disclose all your financial data on Form 433-A, so this is a long form to complete. Actually, it is a ten section form. You may believe that tax filing is a complex process. However, completing this form is considerably more so. Also, if you do not complete the form properly, the IRS will decline your application for an OIC.


As already implied, the IRS does not readily accept OICs. If there is any possibility that you could repay the total amount, they will reject your OIC. Furthermore, they will decline you if you own assets that can be liquidated to settle the arrears.


Fletcher Accounting and Tax Services Inc provides a comprehensive range of tax preparation and planning, consulting and accounting services, intended to serve individuals and small businesses in Palm Beach County. Contact them today at (561) 586-7110.

Fletcher Accounting and Tax Service Inc.
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