Offer In Compromise
An offer in compromise is a program provided by the IRS and many states to aid taxpayers facing financial difficulties in reducing their tax debts. If you have unpaid taxes and are unable to afford full payment, the IRS may accept a settlement for less than the total amount owed.
Determine your eligibility for an Offer in Compromise
How an Offer in Compromise Works with the IRS
When individuals and businesses face difficulty in paying their tax debts, the IRS offers an option known as an offer in compromise to settle the debt. While not guaranteed, this process can be navigated successfully with the right assistance and understanding. Here’s how it works and what you need to know to improve your chances of approval.
Steps to Obtain Approval
The first essential step is ensuring all tax filings and payments on existing plans are current. This is crucial because without accurate financial records, the IRS cannot assess the total tax liability or determine a reasonable amount to collect. Consider hiring a tax professional to help organize your filings effectively.
Once your filings are in order, the following steps are necessary:
- Submit Form 433-A or 433-B along with supporting documentation.
- Complete Form 656.
- Pay a nonrefundable fee of $186.
- Make nonrefundable payments for each Form 656 submitted.
Approval hinges on documenting your assets and expenses accurately to demonstrate your inability to pay the full tax debt. You must also decide between a lump sum payment or installments over time. If you choose installments, you’ll need to make these payments while awaiting the IRS’s decision. Even if your offer is not approved, these payments will reduce your outstanding debt. Your tax professional can assist in negotiating an offer that meets IRS criteria, and if the first offer is rejected, an appeal process can be initiated within 30 days to reconsider.
Navigating the Repayment Process
If your offer is accepted, it will significantly impact your financial planning for the current and potentially future tax years. Any tax refunds you are entitled to during this period will be applied to your outstanding tax debts instead. Additionally, certain details of the offer process may become public information through requestable reports.
Navigating these steps can be complex, which is why seeking professional guidance is highly recommended to maximize your chances of successfully securing an offer in compromise with the IRS.
Who Gets Approved When They Submit an Offer?
The IRS accepts an offer in compromise when it determines it’s the best strategy to recover the maximum possible amount of the outstanding debt. To determine the appropriate offer, it’s crucial to collaborate with a knowledgeable tax professional who has a proven track record of securing approvals for clients in similar financial situations. Without expert guidance tailored to your specific circumstances—whether you’re an individual, business owner, freelancer, or in another niche—it’s difficult to assess your chances of approval accurately.
Additional Key Information
If you currently do not have an existing federal tax lien, one may be filed during the review and approval process while negotiating your offer. The assessment and payment process are prolonged during this period, and any nonrefundable payments you make replace any existing installment plan you may have been following. The IRS also provides an online self-help tool to aid in understanding the evaluation process for offer applications and determining potential compromises.
The IRS will not approve offers if you are undergoing bankruptcy proceedings because your tax debt may fall under the jurisdiction of the bankruptcy court overseeing your debt restructuring and discharge. It’s essential to resolve any ongoing bankruptcy proceedings before initiating an offer in compromise with the IRS.
What to Expect If Your Offer Is Accepted
Acceptance of your offer marks the beginning of resolving your tax issues. It’s critical to adhere meticulously to all stages of the repayment plan to ensure its validity. Also, be aware that the federal tax lien remains until the payment plan is fulfilled. If the plan spans more than 12 installments, incorporate it into your future financial and tax planning.
Seeking Professional Assistance With Your Tax Debt
When facing complex financial decisions, it’s prudent to seek advice from experts who comprehend the choices at hand. Tax professionals are equipped to provide the guidance needed to achieve the best possible resolution with the IRS. If you require assistance negotiating an offer in compromise for the current or past tax years, contact Tax Review Solutions today to explore how you can settle all outstanding tax obligations with a straightforward compromise.
Additional Offer In Compromise Resources:
What Are My Options If My Offer in Compromise Got Rejected?