You want to dig yourself out from under a mountain of tax debt, but maybe you do not know all your options. What if you could settle your debt for less than the full amount owed?
The IRS explains how an offer in compromise works. Paying your full tax debt does not need to bleed your finances dry.
Defining an offer in compromise
If you cannot pay all your tax debt, or if doing so would become a monetary hardship, the IRS could approve you for an offer in compromise. Before approving you, the revenue service considers your asset equity, ability to pay, expenses and income. You improve your chances of qualifying if your offer represents the maximum amount the IRS should expect to receive within a reasonable time frame.
Checking your eligibility
Before applying for an offer in compromise, file all necessary tax returns. If you have estimated payments, you must satisfy them to remain eligible. If you have an open bankruptcy proceeding, you cannot apply for an offer in compromise.
Submitting your application
Your offer in compromise package requires several items:
- Form 433-B (OIC) for business owners and Form 433-A (OIC) for individuals
- Form 656 for business or individual tax debt
- $205 non-refundable application fee
- Non-refundable first payment
Take your time while completing your form. You do not want to forget anything.
Choosing a payment
You have two payment options for an offer in compromise. With periodic payments, you submit your application’s initial payment. Then, you make monthly payments on your remaining balance during the IRS’s consideration period. If your offer receives approval, you keep making monthly payments until you clear your debt.
The lump-sum cash payment option lets you make a 20% initial payment of your total offer amount. The IRS sends you a letter if it approves your offer. You take care of the outstanding balance with no more than five payments.
Hopefully, you qualify for an offer in compromise.