What is an offer in compromise?

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An offer in compromise is an agreement with the IRS to settle your tax debt for less than the full amount you owe.  You may qualify if you can’t pay your full tax liability or doing so creates a financial hardship.  The IRS considers several factors to determine if an offer is acceptable including your equity in assets, your income and expenses.

In order to be eligible for an offer in compromise you must be current in your tax filings.  This means all returns up to the prior year must be filed.  In addition, you must be current with all your current tax deposits.  If you make quarterly ES payments (1040-ES) you must be current with them.  If you are an employee you should be having reasonable income taxes withheld from your paycheck,.  You are not eligible for an offer in compromise if you are currently in an open bankruptcy proceeding.

There are two allowable options to pay your offer when you make an offer in compromise.  The first is called a lump sum cash payment.  You make an offer to the IRS and with the offer you submit 20% of the offer.  After you receive written acceptance of the offer you will then pay the remaining balance in five or fewer payments.  The second option is called periodic payment.  When you choose the periodic payment method an initial payment is made with the offer and a set amount is paid monthly until the balance of the offer is paid.  This must be completed in 24 months from the offer.  Both methods require an application fee unless you meet low income certification guidelines.

An offer in compromise is one of the most abused options by people doing tax representation.  Not everyone can qualify for an offer in compromise.  If you would like us to review your situation to determine if you would qualify, we would be happy to assist you.

 

Posted on November 23, 2015

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