Some commonly asked question and answers about the IRS Offer in Compromise program:
What is an Offer?
An Offer in Compromise is an agreement between you (the taxpayer) and the IRS that settles a tax debt for less than the full amount owed. It may be an option if you cannot pay your full tax liability, or doing so creates a financial hardship. The IRS will consider your ability to pay, your income, expenses and asset equity. Generally, the IRS will not accept an offer if you can pay your tax debt in full through in installment payment agreement or in a lump sum.
Am I eligible?
Before you submit an Offer in Compromise, you must file all tax returns that you are legally required to file, make all required estimated tax payments for the current year, and make all required federal tax deposits for the current quarter if you are a business owner with employees. You are not eligible if you or your business is currently in an open bankruptcy proceeding.
Can I submit an Offer in Compromise for only one tax year or tax period?
All Offers must include all tax years or tax periods in which you owe a tax debt.
Is there an application fee?
Yes, the fee for filing an Offer in Compromise is $150 unless you meet the Low Income Certification guidelines.
What are the payment options?
Lump Sum Cash: This option requires 20% of the total offer amount to be paid with the offer and the remaining balance paid in five or fewer payments within 24 months of the date your offer is accepted.
Periodic Payment: This option requires the first payment with the offer and the remaining balance paid, within 24 months, in accordance with your proposed offer terms. Under this option, you must continue to make all subsequent payments while the IRS is evaluating your offer. Failure to make these payments will cause your offer to be returned.
How long does the process take and what can I expect?
Our firm has been filing Offer in Compromise applications since 2004. In our experience, most offers take a minimum of one year to be accepted by the IRS. After your Offer in Compromise application is sent to the IRS, it may take several months for the IRS to look at your offer. Since there can be a lapse of several months of time between the submission and the review process, the IRS will ask the taxpayer to update the financial information. The IRS will review all of the financial information and make its own determination regarding how much the IRS can collect from the taxpayer during the collection period. Obviously, the IRS wants to collect as much money as possible, so in most cases, the IRS will come back and suggest that you can pay more than the amount offered. This may be due to the IRS taking a position that your assets are worth more than stated, your income is greater than reported, or your expenses are less than reported.
During this period of negotiation, it is imperative that you are represented by competent counsel. Because we understand the formulas used by the IRS to calculate reasonable collection potential, we are in the best position to determine an appropriate offer amount. We also know what information is necessary to sway the IRS employee reviewing your case.