offer in compromise with IRS

Offer in Compromise With the IRS: What You Need to Know Before Applying

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It’s estimated that each year Americans fail to pay roughly $688 billion in taxes.

While some of this amount comes from non-filers, the vast majority is from households or businesses that can’t afford their tax debts.

Being in debt to the IRS can feel like a shadow is constantly looming over you.

Plus, the pentalty fees and interest, only digs you deeper into the hole.

However, there are potential solutions for people in this situation.

Specifically, you can seek an offer in compromise with the IRS.

But what exactly is an offer in compromise? And what do you need to know before applying for it? In this guide, we’ll answer these questions so you can decide if this form of IRS tax debt relief is right for you.

What Is an Offer in Compromise?

An offer in compromise with the IRS (or OIC) is an option you can pursue if you have a substantial tax debt with the IRS.

It’s a good option for people or businesses who would fall into financial hardship if they paid their full tax liabilities.

It allows them to reduce tax debt so they can pay their balance.

When judging an offer in compromise the IRS tends to look at the following:

  • Your ability to pay the tax debt
  • Your income
  • Any expenses you might have
  • Your asset equity

Just because you submit an offer in compromise doesn’t mean it will be accepted.

Indeed, as of the writing of this, the IRS accepts less than 30% of all offers.

When you submit your offer in compromise, you must keep track of the dates.

The IRS has two years to return or reject your offer.

If two years have passed since your submission, then your offer in compromise is automatically accepted.

Review Other Options First

If you can’t pay your taxes, you should pursue every possible alternative before pursuing tax debt settlement options.

First, you should consider getting an extension on your filing.

However, this is usually only helpful if you can come up with the money in that time.

If you can’t afford a lump sum, consider setting up an installment plan.

That way, you’re only paying a smaller amount each month.

If you’re experiencing extreme financial hardship, it’s possible to get a Currently Not Collectible status placed on your account.

This prevents the IRS from collecting payments or freezing your accounts.

Remember that interest and penalties will still grow even with a Currently Not Collectible status.

Make Sure You’re Eligible

Not everyone is eligible for an offer in compromise.

To avoid wasting your time, or the IRS’s, you should confirm your eligibility before proceeding.

Here are some of the criteria when qualifying for IRS offers:

  • File any required tax returns
  • Make any required estimated payments
  • Get a valid filing extension on tax returns that’s for the current return year
  • You’re an employer who made deposits during the current and the past 2 quarters

If you are not eligible, the IRS will return your application.

They’ll also return your application fee, and apply your offered payment to the balance.

If you aren’t sure whether or not your application will be accepted, we recommend checking out this Offer in Compromise Pre-Qualifier Tool.

In addition, you can reach out to speak with a professional that understands these matters.

This could be an Enrolled Agent, a tax attorney, or a CPA.

Gather the Necessary Forms

Now comes the hard part: gathering all the necessary forms and filling them out.

A complete OIC application package will consist of four parts, including:

  • Form 433-A (OIC) if you’re an individual or 433-B (OIC) if you’re a business
  • Form 656(s) which will detail your tax debt
  • An application fee of $205, which is non-refundable
  • The initial payment detailed in Form 656, which is also non-refundable

Once you’ve completed all of these forms, you will mail your package to the IRS.

Form 656-B, Offer in Compromise Booklet will give you more detailed instructions on how to complete the application package.

Know Your Payment Options

When crafting your offer, you will have two payment choices.

The first is a lump sum.

With this option, you will submit a payment totaling 20% of your total offer amount.

If it is accepted, the IRS will inform you.

From there, you will need to pay any remaining balance on your offer in less than five payments.

The other option is a periodic payment.

With this option, you will submit an initial payment that’s detailed in your application.

From there, you will continue to pay monthly payments when the OIC is reviewed.

If accepted, you will continue the monthly installments until your offer is paid in full.

Consider Hiring a Tax Expert

As we mentioned before, the IRS rejects more than half of all OICs.

A good portion of these fail due to the complicated submission process.

As you saw before, there are a lot of forms required to submit.

Each form asks for a huge amount of detail.

All it takes is a simple mistake or an omission of a detail for your application to fail.

That’s why we recommend hiring a tax expert to help you prepare your offer in a compromise claim.

These professionals can provide expert guidance when preparing your documents, so you have the best possible chance of getting them accepted.

Just make sure they have an updated, valid preparer tax identification number (or PTIN) and ideally an Enrolled Agent (EA) on staff due to their specific training to provide support with matters involving the IRS.

Need Help Offer in Compromise With IRS Help? Call Master Accounting and Tax Service, LLC

We hope this guide helped you learn more about an offer in compromise with the IRS.

If you still aren’t sure if this solution is right for you, we recommend reaching out to Master Accounting and Tax Service, LLC.

With over two decades of experience in taxes, we bring a unique expertise to the table.

We’ll help you decide if an offer in compromise is right for you, and we’ll assist you in preparing it so you have the best chance of getting it accepted.

So if you’re ready for the help you need, get in touch with us today.

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