An offer in compromise is one of the payment options defined by the Internal Revenue Service (IRS) whereby the IRS is willing to accept less than the full amount of tax due from a taxpayer. To submit an offer in compromise, you must provide the following four items as outlined on the IRS’ web site at http://www.irs.gov/individuals/article/0,,id=243822,00.html:
- For individuals, Form 443-A found at http://www.irs.gov/pub/irs-pdf/f433a.pdf; for businesses, Form 443-B found at http://www.irs.gov/pub/irs-pdf/f433b.pdf
- Form 656 found at http://www.irs.gov/pub/irs-pdf/f656.pdf
- A $150 application fee
- The first payment due under the proposed offer in compromise
The application fee and first payment are non-refundable, but the IRS will apply them against the taxpayer’s tax liability. While the IRS is considering the offer in compromise, the taxpayer must begin making payments according to the office in compromise payment plan.
While the steps for actually submitting an offer in compromise may be straight forward, providing the necessary information to convince the IRS to accept the offer can be more difficult. The IRS considers an offer in compromise as a last resort of sorts from their perspective in collecting taxes, since they are settling for less than the full amount due from the taxpayer. The IRS would prefer to collect the full amount of tax due by collecting the full payment in a lump sum. Likewise, an installment agreement where the balance due is paid to the IRS over time works in the IRS’ favor, as the IRS collects the full balance due plus interest and penalties.
But the IRS also wants to keep the taxpayer in the system. If the IRS believes a taxpayer is not capable of paying the full amount, the IRS will consider an offer in compromise if they believe it still represents the maximum amount they can collect from the taxpayer in a reasonable time. The responsibility for convincing the IRS that the taxpayer’s offer is an acceptable amount for the IRS to collect rests with the taxpayer.
Can a tax attorney help me set up an offer in compromise?
Yes, a tax attorney will have experience in completing the required steps for the IRS to consider your offer in compromise, as well as the types of situations that lead the IRS to be more likely to accept an offer in compromise. The IRS generally considers an offer in compromise for two reasons: you do not have the finances necessary to pay the full amount of taxes due or payment of the full amount of taxes due would create an unfair hardship on the part of the taxpayer.
In either scenario, a tax attorney will be able to evaluate if your situation is one that may qualify for an offer in compromise. An attorney can also help you to provide the necessary documentation to establish your position in the eyes of the IRS.
If you complete the short evaluation form below, a tax attorney will be able to review your situation to determine what payment option makes sense for you. This review is 100% confidential, free of charge, and does not obligate you to anything more. Therefore, complete the form and seek professional help today in determining if an offer in compromise is the best approach to address your tax liability.
Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.