When Should You File for Offer in Compromise?
An offer in compromise is a program that the IRS offers to taxpayers who owe significant tax debt, but are unable to pay it. An offer in compromise allows you to settle your tax debt for less than you owe if paying the full amount would cause financial hardship.
While this may sound like the ideal solution for everyone who owes money to the IRS, the government is very selective when it comes to who is eligible for this program. We have outlined some key components of this program to help you determine if you might be eligible and how to know when you should file for an offer in compromise.
1. To file an offer in compromise, you must complete Form 656 (Offer in Compromise), Form 433-A (Collection Information Statement) as well as 433-A Worksheet (Calculation Payment Worksheet).
2. One of the most important components of your offer in compromise application is to have backup documentation detailing why you are unable to pay the full tax debt that you owe. The IRS has full discretion to grant or deny your request, so you should make sure that your argument is compelling and backed up by plenty of data.
3. The IRS will only grant an offer in compromise on two main conditions:
a. There is doubt whether you will ever be able to pay the amount of taxes due to them.
b. Paying the entire debt would cause economic hardship or would be considered unfair or inequitable.
4. The IRS requires a $186 fee to process your offer in compromise. If you are unable to pay this amount you can submit a request for a waiver.
5. The IRS offers an online tool to help you access whether you will qualify for an offer in compromise. You can view it here.
6. If you are granted an offer in compromise, you must be willing to agree to the following:
a. You must pay the amount that you agree to in the offer in compromise.
b. File and pay your taxes on time for the next five years
c. Let the IRS keep any tax refunds or credits to your account prior to your offer in compromise submission. You must also agree to let the IRS keep any refund that you might receive during the calendar year that you file the offer in compromise request.
d. If you do not meet these terms, the IRS has the right to revoke the offer in compromise and you will owe the full amount again.
How Likely Are You to Be Granted An Offer In Compromise?
The IRS only grants approximately 25% of all offer in compromise requests that they receive, and the process is lengthy, so it is critical to put in a strong application if you decide to apply. Your best bet may be to partner with a tax firm that has experience submitting these requests with a track record of success.
Success Tax Relief has worked with thousands of clients to settle their tax debt for less than the full amount owed. Contact us today and let us help you submit the strongest application possible.