Do you owe back taxes to the IRS? Until your debt is paid in full, the federal agency can assess penalties, interest, and more. Fortunately, you have options on how to settle your debt with the IRS. One solution is an Offer in Compromise.
Read on to find out what an Offer in Compromise is, how it works, and how a tax attorney can help you qualify.
Key Insights We Will Discuss
- What is an Offer in Compromise?
- How an Offer in Compromise works to reduce your tax debt.
What is an Offer in Compromise?
An Offer in Compromise is a program to help you settle your tax debt with the IRS. If you owe the federal agency money in back taxes, you can work with an attorney to apply for this program to help reduce the amount of money you owe them. In some cases, the amount you agree to pay can be significantly less than what you originally owed. According to the IRS, the agency takes the following factors into consideration when determining if you qualify for the Offer in Compromise program:
- Ability to pay
- Asset equity
What it Means for You and Your Tax Debt
If you owe the IRS money in back taxes, you can work with an attorney to try to qualify for an Offer in Compromise to get the debt amount reduced.
To qualify, you must follow the federal agency’s process.
First, you must determine if you qualify. According to the IRS, for the agency to accept your application, you must make sure you have filed all your required tax returns and have made any required estimated payments. This does not apply to the current tax year if you filed for an extension. You are not eligible to apply for an Offer in Compromise if you are in the middle of open bankruptcy proceedings.
Next, you will need to fill out Form 656-B to apply for the program. Your application package will include:
- Form 433-A for individuals or 433-B for businesses, as well as all required documentation as listed on those forms.
- Form 656
- All of the above forms can be found in an OIC packet here
- A $205 application fee. This is non-refundable. (If you fall 150% or more below the poverty line, then you can get this fee waived).
- The initial payment as detailed in Form 656. This is also non-refundable. (Again, exceptions can be made for low-income households).
Upon completing the Offer in Compromise application, you will make an offer to the IRS as to what amount of back taxes you are prepared to pay. You should work with your tax attorney to determine the amount. (Your tax attorney will also fill out all of the necessary forms, saving you hours of tedious work). Your offer amount should be based on the total amount you owe and your current financial situation, which consists of several different factors.
If the IRS accepts your offer, you will need to determine how you will make payments to settle your tax debt. They will accept the following payment plans:
- Lump-Sum: You will need to submit an initial payment of 20 percent of the total amount with your application. You will then need to pay the remaining balance in five or fewer payments.
- Periodic Payment: You will need to submit your initial payment with your application. You then need to continue to pay the remaining balance in monthly installments while the IRS reviews your application and considers your offer (this can take about 6 months – a year).
If the IRS accepts your offer, you can file an appeal within 30 days by submitting a Request for Appeal of Offer in Compromise, Form 13711 (PDF).
Contact an Attorney
If you want to apply for an Offer in Compromise to settle your tax debt with the IRS, call Ayar Law at 800.571.7175 to receive FREE, no-obligation tax advice from a highly qualified and experienced tax attorney.
- You can settle your tax debt with the IRS by submitting an offer and stating what amount you can pay.
- Work with a tax attorney to determine your offer and payment plan and to fill out the necessary forms.
- Contact Ayar Law to get free, no-obligation legal advice at 800.571.7175