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Offer in Compromise

Offer in Compromise

Hello everyone. This is Marta Torres, checking in from Liberty Taxes &  Business Services. Now that we’re steadily approaching the deadline for the upcoming tax season, it may be causing stress for those of us who have going through rough times. Maybe you haven’t been able cover all of your tax debt. What happens in a situation like this? Better yet, is there anything that can be done on behalf of the taxpayer to stay afloat?

As a matter of fact, there is a ray of hope in something called an offer in compromise. To determine if you meet the eligibility requirements and whether it is a good fiscal decision to follow through with, it makes sense to Find a Tax Preparer that can assist you through this process. In this article, we will take a look at what an offer in compromise is, what forms you must file, what the eligible requirements are, and other information. After reading, be sure to follow the links below to Find a Tax Preparer for an offer in compromise and start the process immediately.

What is an Offer in Compromise?

So, what exactly is an offer in compromise? For those that owe a tax debt, an offer in compromise allows for you to settle your debt for less than the entire amount that is overdue. If you can’t pay your full tax liability, or doing so creates a financial hardship that may compromise your future, an offer in compromise may be a legitimate option.

There’s a number of factors that an Accountant hired on your behalf would consider beforehand to steer you towards this path. These include:

  • The ability of the client to pay
  • The amount of income expected
  • Expenses
  • Equity in assets

How Do I Know If I’m Eligible?

Before you consider an offer in compromise as a viable option, understand that there are a number of requirements that determine whether you can be eligible before an offer in compromise can be considered by the IRS. You must:

  • file all tax returns that you are legally required to file,
  • make all of the required estimated tax payments for the current year, and
  • make all required federal tax deposits for the current quarter if you’re a business owner with any employees.

In addition to these requirements, if you are currently in an open bankruptcy proceeding, you will be ineligible for to make an offer in compromise.

How to Submit Your Offer

To find instructions and all of the necessary forms for your offer in compromise, the IRS provides Form 656-B, Offer in Compromise Booklet. A completed offer packed will be comprised of:

  • Form 433-A (OIC) (for individuals) or 433-B (OIC) (for 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;
  • A non-refundable $186 application fee; and
  • Initial payment (non-refundable) for each Form 656

Types of Payment Options

There are two different types of payment options for an offer in compromise. They will vary depending on your offer and based on the payment option of your choosing:

  • Lump Sum Cash Payment: The standard amount for this type of payment is 20% of the total offer amount with your application, with the expectation that you will pay the rest of the balance in five or fewer payments. (Generally, the IRS will not accept an offer if you can pay your tax debt in full through lump sum. A qualified Tax Preparer can help you determine if a lump sum cash payment is an effective course of action.) 
  • Periodic Payment: After submission of your initial payment with your application, you are expected to pay the remaining balance in monthly installments. The IRS considers your offer. Upon acceptance, you will be expected to continue payment until the balance is paid in full.

In the interim period while your offer is evaluated by the IRS, you can expect some of the following to occur:

  • The non-refundable fees and payments will be credited towards your tax liability. These payments and fees can be used towards a specific tax year and remaining tax debt
  • A Notice of Federal Tax Lien may be filled
  • Collection activities are suspended
  • The legal assessment and collection period is extended
  • You will be required to make payments associated with your offer
  • Payments that are associated with pre-existing installment agreements are not required

It is worthy to note that if the IRS does not make a determination within two years after you’ve submitted your offer in compromise, the offer in compromise is automatically accepted.

What Happens Next?

In the event that your application is rejected, you are given the right to an appeal within 30 days afterwards by using Form13711,  Request for Appeal of Offer in Compromise.

If your application is accepted:

  • You must meet all the Offer Terms listed in Form 656, Section 8 including filing all required tax returns and making all payments;
  • Any refunds due within the calendar year in which your offer is accepted will be applied to your tax debt;
  • Federal tax liens are not released until your offer terms are satisfied; and
  • Certain offer information is available for public review at designated IRS       offices.
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