Offer in Compromise: Understanding A Path to Settle Your Tax Debt

What is an Offer in Compromise?

An Offer in Compromise (OIC) is a valuable option if you’re facing tax debt that you can’t fully pay. This program allows you to settle your debt for less than the total amount owed, particularly if paying the full amount would create financial hardship.

Eligibility Criteria

To qualify for an OIC, you’ll need to meet certain criteria:

• Filed All Tax Returns: Ensure all required tax returns are filed and estimated payments are made.
• No Bankruptcy: You shouldn’t be in an open bankruptcy proceeding.
• Employer Requirements: Employers must have made tax deposits for the current and past two quarters.
• Current Year Extension: If applying for the current year, a valid extension must be in place.

Check Your Eligibility: Use the Offer in Compromise Pre-Qualifier Tool to determine if you’re eligible and prepare your preliminary proposal.

How to Submit Your Application

To apply for an OIC, you’ll need to complete and submit the following:

1. Forms 433-A (OIC) for individuals or 433-B (OIC) for businesses.
2. Form 656(s) for each tax debt type (individual, business).
3. A $205 non-refundable application fee and an initial payment based on the payment option chosen.

Mail your completed application package to the appropriate IRS site as indicated on Form 656-B, Offer in Compromise Booklet.

Payment Options

Choose from two payment options:

• Lump Sum: Pay 20% of the total offer amount upfront and settle the balance in up to five payments.
• Periodic Payment: Start with an initial payment and continue paying in monthly installments during the IRS review process.

For those meeting low-income certification guidelines, the application fee and initial payments are waived.

Navigating the Offer in Compromise Process

Once you’ve submitted your Offer in Compromise, here’s what to expect:

1. Notification and Review: If the IRS cannot process your offer, you’ll receive a written notification explaining why. If they can proceed, you’ll get a letter with an estimated date of contact and any additional information they may need from you.
2. Application of Payments: Any non-refundable payments and fees you submit are applied to your tax liability. You can specify which tax year and debt these payments should cover.
3. Possible Federal Tax Lien: The IRS may file a notice of federal tax lien during this process, securing the government’s interest in your property.
4. Suspension of Collections: While your offer is under review, the IRS will suspend other collection activities, giving you some relief from immediate collection pressure.
5. Extension of Time: The legal timeframe for assessment and collection of your tax debt is extended during this review period.
6. Payment Compliance: Continue making any required payments as outlined in your offer. You do not need to continue payments on an existing installment agreement during this time.
7. Automatic Acceptance: If the IRS does not make a determination within two years of receiving your offer, it will be automatically accepted (excluding any appeal periods).

If Your Offer is Accepted

You must comply with all offer terms, including filing required returns and making payments. The IRS will not release federal tax liens until all terms are satisfied.

If Your Offer is Rejected

You can appeal a rejection within 30 days using Form 13711, Request for Appeal of Offer in Compromise. The IRS Independent Office of Appeals can provide additional assistance.

At Honest Accounting Group, we’re here to guide you through the OIC process and find the best solution for your tax debt situation. Let’s take control of your financial future together!