Offer in Compromise

An Offer in Compromise, you are asking to pay an amount smaller than the full amount of what you owe Internal Revenue Service. The IRS, at its analysis, may accept less than full payment of your tax debts if you can show that there is doubt as to whether the IRS could ever collect the full amount of  the tax obligation.

The IRS will consider your unique set of facts and circumstances:

  • Ability to pay;
  • Income;
  • Expenses; and
  • Asset equity.

The IRS will generally approve an offer in compromise when the amount offered represents the most that can be expected to collect within a reasonable period of time.

To be eligible for an offer in compromise you must have filed all of your previous taxes and you can not be in an open bankruptcy.

 

The process of an offer in compromise requires precise documentation and proper forms filled out before the IRS will consider if you qualify for this remedy.

 

Your completed offer will include:

  • Form 433-A (OIC) (individuals) or 433-B (OIC) (businesses) and all required documentation as specified on the forms;
  • Form 656(s) – individual and business tax debt (Corporation/ LLC/ Partnership) must be submitted on separate Form 656;
  • $150 application fee (non-refundable); and
  • Initial payment (non-refundable) for each Form 656.

Select a payment option

Your initial payment will vary based on your offer and the payment option you choose:

  • Lump Sum Cash: Submit an initial payment of 20 percent of the total offer amount with your application. Wait for written acceptance, then pay the remaining balance of the offer in five or fewer payments.
  • Periodic Payment: Submit your initial payment with your application. Continue to pay the remaining balance in monthly installments while the IRS considers your offer. If accepted, continue to pay monthly until it is paid in full.

It will take one to two years to complete the Offer in Compromise process. The time line for an Offer in Compromise looks like this:

  • Preparing the Offer in Compromise forms and backup documentation (1-4 months)
  • IRS Processing of your Offer in Compromise (13-18 months)
  • Finalizing the Offer and Making Payment Arrangements (1-3 months)

Based on the latest statistics, the IRS takes an average of 380 days to process an Offer in Compromise application. Your processing time may be shorter or longer than this.

 

If your Offer in Compromise has been approved that is not the end. You need to make sure the IRS does not revoke your offer in compromise to prevent a revocation you need to.

  • File your taxes on-time for the next five years.
  • If you cannot file by April 15th, request an automatic extension. Definitely file your taxes by the extension deadline.
  • Pay your taxes on-time. If you owe, your taxes must be paid in full by April 15th.

If the IRS revokes your Offer in Compromise, they will reinstate the full amount of your tax liability, add on penalties and interest, and begin aggressive collection efforts.

 

If you don’t qualify for an Offer in Compromise, you should consider setting up an installment agreement to pay off your tax debts.