An “offer in compromise” is a tax payment option that the IRS makes available to taxpayers who cannot pay an income tax debt in full and for whom an installment agreement is not feasible. Legally, a debt can be compromised if:
- Doubt as to Liability – You have doubts about whether the assessed tax is accurate
- Doubt as to Collectibility – You have doubts about your ability to pay the full amount of tax owed
- Effective Tax Administration – You can show that even though the assessed tax is accurate and you can pay it, doing so would be unfair and/or create an economic hardship
How Do I Qualify for an Offer in Compromise?
If all other payment arrangements are not possible, you can ask the IRS to consider an offer in compromise. For the IRS to process your “offer”, you must satisfy several requirements:
- Submit Form 656 (“Offer in Compromise”) and Forms 433-A and 433-B (“Collection Information Statements”)
- Pay application fee of $150, unless you are filing an offer based on a “doubt as to liability” or your total monthly income falls at or below the poverty income level, based on the Department of Health and Human Services (HHS) poverty guidelines (Note: the poverty guidelines do not apply to businesses)
- File all required federal tax returns
- File and pay, in a timely manner, any required employment tax returns
- Not be a debtor in a bankruptcy case
What Must I Do to Submit an Offer in Compromise?
You should know the following when submitting an offer in compromise:
- Determine your offer amount -Your offer must exceed $0.00
- Assemble your financial information – You must provide the IRS with information which reflects at least the past six months of your current financial situation
- Determine your payment terms – The IRS will agree to one of three different payment plans:
- Cash (paid in 90 days or less)
- Short-Term Deferred Payment (more than 90 days, up to 24 months)
- Deferred Payment (beyond 24 months through the remaining statutory collection period)
Can a Lawyer Help Me with My Offer in Compromise?
The requirements for an offer in compromise are lengthy and can be complicating. A tax attorney familiar with federal income tax laws can assess your tax burdens and help determine if an offer in compromise is right for you. The attorney can also help you complete and submit your offer to the IRS.