Using an Offer In Compromise to Settle Tax Debt

Understanding an offer in compromise is important if you have IRS tax debt. This is a process in which you pay a fraction of your total liability as agreed upon with the IRS. You are not able to decide on an offer in compromise on your own. You have to apply for this, and from there your offer must be accepted by the IRS. It is common for the IRS to deny an offer in compromise for one reason or the next. You should never think that this is an easy way out of paying your total debt. Before you apply for an Offer in Compromise There are a few things you need to know before you decide to apply for an offer in compromise. It is important to know exactly what you are doing so you do not face any surprises. 1. Not everybody is eligible for an offer in compromise. You need to have special circumstances to qualify. 2. Payments made through an offer in compromise are non-refundable. 3. A federal tax lien will not be immediately released upon filing for an offer in compromise. 4. Your offer in compromise can go into default if you do not file and pay all taxes on time for the next five years or until your liability is paid in full. Do you qualify for an Offer in Compromise? An offer in compromise is only accepted if it is mutually beneficial to both the taxpayer and the IRS. In other words, if you have the money to pay your tax bill in full it does not do the IRS any good to settle with you. Instead, they will come after the entire amount because they know you can pay it. To qualify for an offer in compromise you have to prove one of the following: doubt as to liability, doubt as to collectibility, or effective tax administration. What Forms are required? There are four forms that are commonly used during the process of filing for an Offer in Compromise. You may or may not have to use them all. They include: 1. Offer in Compromise IRS Form 656. 2. Income Certification for Offer in Compromise Application Fee and Payment IRS Form 656-A. 3. Collection Information Statement for Wage Earners and Self-Employed Individuals IRS Form 433-A. 4. Collection Information Statement for Businesses IRS Form 443-B.