Offer in Compromise

Essential Information on IRS Offers in Compromise

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What is an Offer in Compromise?

By filing an Offer in Compromise, you are offering to pay less than the full amount of your tax debts to the Internal Revenue Service. The IRS, at its discretion, may accept less than full payment of your tax debts if there is doubt as to whether the IRS could ever collect the full amount of tax debt or if there is doubt as to whether you are actually liable for the tax debt.

Submitting an offer in compromise is one of five ways to get out of tax debt.

What are the terms and conditions of the Offer in Compromise?

In a nutshell, you agree to

  • Pay the offer amount in the Offer in Compromise.
  • File your tax returns on-time and pay your taxes on-time for the next five years.
  • Let the IRS keep any tax refunds, payments, and credits applied to your tax debts prior to submitting your Offer in Compromise.
  • Let the IRS keep any tax refunds that would have been payable to you during the calendar year that your Offer in Compromise is approved.

If you don't fulfill the terms of the Offer contract, the IRS can (and probably will) revoke the Offer in Compromise and reinstate the full amount of tax liability.

What can I do to protect my Offer in Compromise from being revoked?

If your Offer in Compromise has been approved, you need to make sure the IRS does not revoke your Offer. At all costs, make sure that you:

  • File your taxes by April 15th for the next five years.
  • Pay your taxes by April 15th for the next five years. If you owe, your taxes must be paid in full by April 15th. Make estimated payments to make sure you don't have a balance due.

If the IRS revokes your Offer in Compromise, they will reinstate the full amount of your tax liability, add on penalties and interest, and begin aggressive collection efforts.

Can I pay "pennies on the dollar" to settle my tax debts?

The marketing slogan, "pay pennies on the dollar," is misleading.

In a successful offer in compromise, the taxpayer pays less than the full amount taxes, penalties and interest. However, the taxpayer must prove that the amount he or she is paying is equal or more than the reasonable collection potential as determined by the IRS. The reasonable collection potential, broadly speaking, is the IRS' best guess about how much money you could come up with in the next 24 months to pay off your tax debts.

How long does it take to get an Offer in Compromise?

It will take one to two years to complete the Offer in Compromise process.

Is there a fee for submitting an Offer in Compromise?

The IRS charges a user fee of $186 to process an Offer in Compromise. You must pay this fee whether you prepare the Offer yourself or hire a tax professional. If you are living below the poverty line, the IRS will waive the fee if you request a fee waiver.

I want to prepare an Offer in Compromise myself. What do I need to do?

Refer to the Offer in Compromise Booklet (PDF) on the IRS Web site.

How Can I Tell if an Offer in Compromise Might be Right for Me?

The IRS has an offer in compromise pre-qualifier tool on their Web site at http://irs.treasury.gov/oic_pre_qualifier/.

 

What if I don't qualify for an Offer in Compromise?

If you don't qualify for an Offer in Compromise, you should consider setting up an installment agreement to pay off your tax debts. You will want to seek the help of a tax professional to evaluate alternatives for handling your tax debts.

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