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. Furthermore, the IRS will consider your unique set of facts and circumstances:
- Ability to pay;
- Expenses; and
- Asset equity.
The Service generally approves an offer in compromise when the amount offered represents the most they can expect to collect within a reasonable period of time. Furthermore, you can explore all other payment options before submitting an offer in compromise. The Offer in Compromise program is not for everyone. Moreover, if you hire a tax professional to help you file an offer, be sure to check his or her qualifications.
Am I Eligible for an Offer in Compromise?
The IRS will return any newly filed Offer in Compromise (OIC) application if you have not filed all required tax returns and have not made any required estimated payments. Accordingly, the IRS will also return any application fee included with the OIC will. 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.
You are not eligible if you are in an open bankruptcy proceeding. Consequently, you can use the Offer in Compromise Pre-Qualifier to confirm your eligibility and prepare a preliminary proposal.
IRS Offer in Compromise Pre-Qualifier
The following questions and answers will help determine whether you qualify for an offer in compromise:
Are you in a bankruptcy proceeding?
Having you filed all required federal tax returns?
Have you made all required estimated tax payments?
If you are self-employed and have employees, have you submitted all required federal tax deposits?
Equity in Assets
What is the total equity of your assets (including: vehicles, bank accounts, homes, retirement accounts, real property, stocks, etc.)?
Income from All Sources
What is your gross monthly income from all sources? Income sources include: wages, interested and dividends, distributions from partnerships or s corporations, net rental income, net business income, child support received, alimony received, etc.
Typically Monthly Household Expenses
What are your typical month’s household expenses? These include: rent, vehicle loan or lease, food, clothing, vehicle operation, transportation costs, health insurance premiums, out of pocket medical, life insurance premiums, federal, state, and local taxes, court ordered payments, student loans, child care costs.
Do I Qualify for an Offer in Compromise?
If you are dealing with a tax liability you could benefit from the IRS offer in compromise program. In addition to the IRS, you can read more about the EDD offer in compromise program and the CDTFA offer in compromise program. Contact a tax lawyer to discuss whether you qualify.