I am a former IRS agent and teaching instructor of the offer in compromise.
I both worked the offers in compromise and accepted offers in compromise for the Internal Revenue Service.
FACTS about the OIC:
IRS works around 70,000 offers a year and accepts approximately 32,000 offers in compromise for average settlement of $9500 per offer.
These figures are misleading because this is the national average. Some cases settle for one cents on the dollar while others case settled for $0.90 on the dollar.
The acceptance of an offer in compromise depends solely on the financial statement, documentation, and the collectibility that the United States government feels they can collect over the life of the statute from a taxpayer.
Offers in compromise are time-consuming and more complex than people think. For the average offer that’s over $100,000 IRS probably puts at least 20 hours into the case. IRS spends a lot of time in due diligence to make sure the financial statements are accurate and correct.
The Internal Revenue Service actually audits the financial statement. IRS spends a lot of due diligence on offers in compromise and one of the reasons for that is all excepted offers in compromise become public record for 18 months at certain regional tax offices for public inspection.
If you are contemplating filing an offer in compromise you must learn the standards, and the rules before submitting it. I also caution all taxpayers to walk through the prequalifier tool to make sure they are a qualified candidate.
One of the cardinal rules for the offer in compromise is that you must offer to Internal Revenue Service your total liquidity in your assets. Real estate is discounted by 20%.
Should you have any questions please feel free to contact me I will review your offer for free and make recommendations
Beginning with Offer applications received on or after March 27, 2017:
The IRS will return any newly filed Offer in Compromise application if you have not filed all required tax returns. Any application fee included with the OIC will also be returned. Any initial payment required with the returned application will be applied to reduce your balance due. This policy does not apply to current year tax returns if there is a valid extension on file.
An offer in compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can’t pay your full tax liability, or doing so creates a financial hardship.
IRS will consider your unique set of facts and circumstances of your case:
Ability to pay;
Income;
Expenses; and
Asset equity.
IRS will generally approve an offer in compromise when the amount offered represents the most we can expect to collect within a reasonable period of time.
Make sure you are eligible for the OIC:
Before IRS can consider your offer, you must be current with all filing and payment requirements.
You are not eligible if you are in an open bankruptcy proceeding. Use the Offer in Compromise Pre-Qualifier to confirm your eligibility and prepare a preliminary proposal.
Submit your offer
You’ll find step-by-step instructions and all the forms for submitting an offer in the Offer in Compromise Booklet, Form 656-B (PDF).
Your completed offer package will include:
Form 433-A (OIC) (individuals) or 433-B (OIC) (businesses) and all required documentation as specified on the forms;
Form 656(s) – individual and business tax debt (Corporation/ LLC/ Partnership) must be submitted on separate Form 656;
$186 application fee (non-refundable); and
Initial payment (non-refundable) for each Form 656.
Select a payment option for the OIC:
Your initial payment will vary based on your offer and the payment option you choose:
Lump Sum Cash Payment:
Submit an initial payment of 20 percent of the total offer amount with your application. If your offer is accepted, you will receive written confirmation. Any remaining balance due on the offer is paid in five or fewer payments.
Periodic Payment:
Submit your initial payment with your application. Continue to pay the remaining balance in monthly installments while the IRS considers your offer. If accepted, continue to pay monthly until it is paid in full.
If you meet the Low Income Certification guidelines, you do not have to send the application fee or the initial payment and you will not need to make monthly installments during the evaluation of your offer. See your application package for details.
Understanding the process
While your offer is being evaluated:
Your non-refundable payments and fees will be applied to the tax liability (you may designate payments to a specific tax year and tax debt);
A Notice of Federal Tax Lien may be filed;
Other collection activities are suspended;
The legal assessment and collection period is extended;
Make all required payments associated with your offer;
You are not required to make payments on an existing installment agreement; and
Your offer is automatically accepted if the IRS does not make a determination within two years of the IRS receipt date.
If your offer is accepted:
You must meet all the Offer Terms listed in Section 7 of Form 656, including filing all required tax returns and making all payments;
Any refunds due within the calendar year in which your offer is accepted will be applied to your tax debt;
Federal tax liens are not released until your offer terms are satisfied; and
Certain offer information is available for public review by requesting a copy of a public inspection file.
If your offer is rejected
You may appeal a rejection within 30 days using Request for Appeal of Offer in Compromise, Form 13711 (PDF).
Call us today for a free tax consultation.
