When it comes to an IRS tax debt settlement, one of the best available options is to appeal for an Offer in Compromise. This is an agreement between your tax attorney and the IRS where you will pay a lesser amount than what you actually owe.
The purpose of an Offer in Compromise is to convince the IRS that it is not worth their time to forcibly take money from you (i.e. levy) when you have no funds to give anyway. Your alternative is a lesser one-time payment or a more flexible payment scheme.
Requisite Criteria for Consideration of an Offer in Compromise
It should be noted that an Offer in Compromise is not available for everybody. The IRS follows strict guidelines, restrictions and requirements before a debtor is granted the right for an Offer in Compromise. The following criteria are carefully studied before an Offer in Compromise is awarded:
- Capacity to pay debt
- Present and future income
- Daily expenses
- Asset equity values
An Offer in Compromise is approved when the offered amount is almost tantamount to the reasonable amount that the IRS can collect within a reasonable period of time. By law they are allowed to collect the taxes owed.
There are additional qualifications the IRS takes for consideration for each debtor who seeks an Offer in Compromise:
- Doubt as to Liability. This is where a taxpayer must show reason for doubt that the assessed tax liability is accurate.
- Doubt as to Collectability. A taxpayer must show that the debt cannot be collected in full under any circumstances
- Effective Tax Administration. A taxpayer will not contest liability but can show special circumstances that debt collection will “create an economic hardship or would be unfair and inequitable.” Typically this Offer in Compromise arrangement is available for anyone but priority is given to the elderly, disabled and those that can clearly economic hardship.
Pointers in Submitting an Offer
When you have decided to seek an Offer in Compromise, you will need the services of a tax professional, like a tax lawyer, to file this offer for you. Before you engage his or her services, make sure you check the following pointers:
- Your Financial Eligibility:A taxpayer must be up to date with all the filing and payment requirements. Likewise, one is not eligible if in a bankruptcy proceeding.
- Requisite Forms:The step-by-step instructions you need in filing can be read and referenced in the Offer in Compromise Booklet, Form 656-B (PDF). There is also information in the Complete Form 656 video. The offer package will include the following:
- Form 433-A (OIC) for individuals and Form 433-B (OIC) for businesses
- Form 656
- Non-refundable application fee
- Non-refundable initial payment (dependent on payment options)
During Evaluation of Offer in Compromise
While a taxpayer is undergoing evaluation for his Offer in Compromise, the non-refundable payments and fees will still be applied with tax liability. These are other activities which may be done:
- Filing of Notice of Federal Tax Lien
- Suspension of collection activities
- Extension of legal assessment and collection period
- Tendering of required payments associated with the offer
- Removal of commitment to make payments on existing instalment agreements