Offer In Compromise an Agreement to Pay IRS Less Than What You Owe
Offer In Compromise – it may sound too good to be true. But if you qualify, it is possible to set up an agreement with the Internal Revenue Service to settle your tax debt for less than the full amount. Your offer, though, must be appropriate for what the IRS thinks you are able to pay.
How Do You Qualify for an Offer In Compromise (OIC)?
Before you can even apply, you must meet some conditions. First, you need to file all your required tax returns to date. Second, the IRS must have sent you a bill for at least one tax debt you’ll include in your offer. Third, you must make all your estimated tax payments for the current year. Finally, if you’re a business owner with employees, you must have deposited all your payroll taxes for the current quarter, as well as the previous two quarters. Beyond the tax requirements, you also can’t have a current bankruptcy in place.
The IRS has a prequalifying tool to see if you’re eligible to apply. If you are, you need to fill out the rather lengthy forms 656 and 433. Instructions are included with the forms. However, you may want to consult with an enrolled agent or qualified accountant for help in applying. And beware of OIC “mills” making extravagant promises and charging you high fees at the same time.
Once you fill out the forms, you send them to the IRS with a $205 filing fee along with an initial payment. If you qualify as low income (as outlined in the instruction book), you may be exempt from paying the $205 fee. But you still need to send an initial payment. If your OIC is turned down, the government will apply the payment to your tax debt.
What Happens When the IRS Accepts Your OIC?
You need to pay the amount you agreed upon according to the terms of the agreement. The IRS will keep any tax refund resulting from future returns. You waive your right to go to court to fight the tax liability. If the government has placed a lien on your property due to the unpaid taxes connected with the agreement, they will lift the lien.
What If My OIC is Rejected?
If you disagree with the IRS’s decision, you have 30 days to appeal. If you agree with the decision, you can request an installment plan.
The goal of an OIC is to settle on an arrangement fair to both sides. Ideally that means the government gets its money without causing you financial hardship.
Links
Use the Offer in Compromise Pre-Qualifier to see if you might be eligible to apply.
You can download the Offer In Compromise booklet with the necessary forms here.
Lastly, you can learn more about our services here!
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