What is an Offer in Compromise?
An Offer in Compromise is an agreement between a taxpayer and the Internal Revenue Service that settles a tax debt for less than the amount owed.
What do you do first?
A taxpayer submits an Offer in Compromise by completing two standardized forms and collecting all of the required supporting documentation. A check list identifying the necessary documentation is provided with the application.
Why should you take care to fill everything out correctly?
If an Offer in Compromise is not submitted according to the published IRS requirements and procedures, it can result in the delay or denial of the offer even if the taxpayer might otherwise qualify. The Offer in Compromise application must be submitted in writing, signed by the taxpayer (under penalty of perjury), and must contain all of the information required by the IRS. When the offer is submitted solely on the basis of doubt as to the taxpayer’s liability, there is no requirement to provide financial statements.
What happens after the offer has been submitted?
An Offer in Compromise attains a status of pending when it is accepted for processing by the IRS. As might be expected, the IRS generally will not accept an offer for processing if there is a related criminal case with the Department of Justice. Once submitted, if an offer does not contain all of the required information and documentation, the IRS will request that the taxpayer provide whatever is missing. If the requested information is not provided in a timely manner, the application may be returned. The IRS will deny an Offer in Compromise if it determines that the offer was submitted solely for the purpose of delaying collection of the tax debt.
What if you decide to withdraw your offer?
An Offer in Compromise may be withdrawn by the taxpayer at any time prior to acceptance of the offer by the IRS. It will be considered withdrawn upon the receipt by the IRS of written notification of the withdrawal. An official withdrawal of an Offer in Compromise may be made by personal delivery, certified mail, or upon issuance of a letter from the IRS confirming the taxpayer’s intent to withdraw the offer.
How will you know that your offer for tax settlement has been accepted?
An Offer in Compromise is considered accepted when the taxpayer or the taxpayer’s representative receives a written Notice of Acceptance from the IRS. As a condition of acceptance, the IRS may request that the taxpayer enter into a collateral agreement if it is deemed necessary for the protection of the interests of the United States. For instance, if the final payment on an accepted Offer in Compromise is contingent upon the simultaneous release of a tax lien, that payment must be made in accordance with the forms, instructions and procedures prescribed by the Secretary of the Treasury.
What is the end result?
Acceptance of an Offer in Compromise will settle the tax debt of the taxpayer (or taxpayers) designated on the application for the dollar amount specified in the offer. The acceptance of an Offer in Compromise for one taxpayer does settle the tax liability of any person not named in the offer.
Why should you consider hiring a tax professional?
The process of obtaining an Offer in Compromise can be difficult and time consuming. When it involves tax debts related to multiple years and/or multiple taxpayers and tax liens or tax levies, the process can be increasingly difficult. A qualified tax resolution specialist can be helpful, first, in determining if a taxpayer meets the acceptance criteria for an Offer in Compromise and, following that, in completing the application according to IRS specifications. A tax specialist will also have the knowledge to accurately calculate and document a taxpayer’s inability to pay the full amount of the tax debt so that the offer will have a reasonable chance of being accepted by the IRS.