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November

The 411 on an Offer in Compromise

Imagine getting a fresh start in your tax life at a huge discount. That’s precisely what the Offer in Compromise program from the IRS offers. It allows qualified individuals with unpaid tax debt to negotiate a settled amount that is based on the taxpayer’s true ability to pay, and is often significantly less than the original debt. Consider it an alternative to setting up an installment plan with the IRS to pay the full amount of your tax debt.

Eligibility

First and foremost, you must file all tax returns you are legally required to file, make all required estimated tax payments for the current year, and make all required federal tax deposits for the current quarter if you are a business owner with employees. If you have filed bankruptcy, the Offer in Compromise program is unavailable.

The Process

The first step is to apply. Unfortunately, approval is not guaranteed, but understanding the process will strengthen your chances. The IRS will evaluate and verify your application, and take circumstances that may affect your ability to pay into consideration. Penalties and interest will continue to accrue during the offer evaluation process. You cannot apply until you receive at least one bill for any tax debt that will be included in your offer. The application fee is $186, unless you meet or exceed the requirements of the Low Income Certification guidelines.

Payment Options

Your application must include a payment option and include your initial payment with your offer. Payment periods range from 5 to 24 months, and in most instances, payments made on a monthly basis, even while your offer is being evaluated. Failure to make a payment will result in an end to your offer without the option to appeal. If you fall under the aforementioned Low income Certification, you are not qualified to submit the initial payments or any payments until your offer is accepted.

Need to Know Information

The IRS provides a step-by-step guide to calculate an appropriate offer based on your assets, income, expenses, and future earning potential, as the application requires you to detail your financial situation. Information and documentation will be pertinent. If approved, your future tax refunds will be automatically applied to your tax debt, but it is not considered a payment. The IRS may apply a levy until your offer in compromise is acknowledged as pending, and may keep any funds from the levy.

Filing an offer in compromise does not relieve you of attending to tax returns, estimated tax payments, and federal tax payments through the evaluation process and the duration of your offer for five years after acceptance.

An offer in compromise can serve as a secure and less expensive alternative to taking care of your tax debt. It comes with its share of downsides, however, as a time-consuming process without guarantee. Contact a tax professional to ensure likelihood of acceptance and that you make a reasonable offer.