What is an Offer in Compromise?

An Offer in Compromise is a type of IRS payment plan that allows taxpayers to settle their tax debts for less than the full amount of what they owe to the agency. When determining whether someone is eligible for an Offer in Compromise, the IRS looks at a variety of factors, including the person’s ability to pay, income, expenses, and assets. If you can’t pay your own tax debt, or doing so would result in a financial hardship for you and your family, an Offer in Compromise could be right for you. Read on to learn more about qualifying for this payment plan.

Eligibility for an Offer in Compromise 

A taxpayer can qualify for an Offer in Compromise if he or she:

• Has filed all necessary tax returns;
• Has made all estimated payments;
• Is not involved in a pending bankruptcy proceeding;
• Has a valid extension for a current year tax return; or
• Is an employer and made tax deposits for both the current and past two quarters.

Taxpayers who don’t qualify for this type of payment plan, but who still submit an application can expect their application and fee to be returned and for any offer payment included in the application to be applied to the balance they owe.

Completing the Application Package 

To apply for an Offer in Compromise, taxpayers must complete an application package, which in turn requires:

• Filling out Form 433-A (OIC) for individuals or Form 433-B (OIC) for businesses, as well as submitting supporting documentation;
• Filling out Form 656(s) for individual and business tax debt;
• Paying a $205 non-refundable application fee; and
• Submitting a non-refundable initial payment for each Form 656 submitted.

The amount of the initial payment that a person must submit will vary depending on the offer and the payment option he or she chooses, which includes either:

• A lump sum cash payment, which requires an initial payment of 20 percent of the total offer amount in the application, with the remainder due in no more than five payments; or
• Periodic payments, which besides an initial payment with the application must be made monthly until the amount is paid in full.

Evaluating the Offer

 While the IRS evaluates a taxpayer’s application, it will take a few different steps, including:

• Applying payments and fees to the tax liability;
• Filing a Notice of Federal Tax Lien;
• Suspending other collection activities; and
• Extending the taxpayer’s legal assessment and collection period.

If the IRS rejects a taxpayer’s application for an Offer in Compromise agreement, he or she has 30 days to appeal that decision.

Help from an Experienced Florida IRS Offers in Compromise Lawyer 

For help determining whether an Offer in Compromise payment plan is the best option for helping you pay off your tax liability to the IRS, call 386-490-9949 and set up a meeting with experienced CPA, former FBI Special Agent, and skilled Florida IRS Offers in Compromise attorney Ronald Cutler, P.A. You can also reach us via online message.

Sources: 

irs.gov/payments/offer-in-compromise

irs.gov/pub/irs-pdf/f656b.pdf