Offer in Compromise: Settle Your Tax Debt
The Internal Revenue Service revised the instructions and forms for their Offer-in-Compromise program in July 2006 in response to changes in the tax law under the Tax Increase Prevention and Reconciliation Act. The new law requires offer in compromise applicants to begin making payments on their proposed offer in compromise.
What You Need to Know Now
The Offer-in-Compromise (OIC) program is the only way for you to settle your tax debt for less than what you owe.
This program has been misunderstood by consumers and abused by unscrupulous tax preparers.
Filing an offer in compromise is one of five ways to get out of tax debt.
Starting July 16, 2006, all offer in compromise applicants must begin making payments on their proposed settlement amount. There are three payment options: lump sum payment, monthly payments over 24 months or less, or monthly payments over the remaining statute of limitations. Under the new law, applicants must submit a 20% down payment if they choose a lump sum payment plan, or must begin making monthly payments if they choose one of the two monthly payment options.
Also, the IRS intends to crack down on abusive tax preparers who submit offers that do not meet the eligibility requirements. The IRS has also made it easier for you to prepare an offer yourself by making the instructions much easier to read and to follow.
Get the Instructions and Forms
You can obtain the all the Offer in Compromise forms and instructions in a booklet on the IRS Web site called Form 656-B (46 pages, PDF format). You can also call the the IRS at 1-800-829-3676 and ask them to mail you this booklet, or you can pick it up from a local IRS taxpayer assistance center.
Helpful Tips on Offers in Compromise
I provide useful information to help you successfully prepare an IRS Offer in Compromise in the following articles:
- Offer in Compromise Essentials
- Hiring a Tax Professional to Prepare an Offer in Compromise
- Offer in Compromise Forms & Documentation
- Preparing IRS Form 433A
- Calculating Your Settlement Amount - Reasonable Collection Potential
- Preparing IRS Form 656
- Offer in Compromise Checklist
- Payment Options for an Offer in Compromise
- Protecting Your Tax Refunds during an Offer in Compromise
- Complete List of Offer in Compromise Articles
Other Tax Debt Strategies
There are five, and only five, ways to get out of tax debt. Filing an offer in compromise is one of them. The other four options are:
- Installment agreement: a monthly payment plan for paying off the IRS.
- Not currently collectible: a program where the IRS voluntarily agrees not to collect on the tax debt for a year or so.
- Partial payment installment agreement: a fairly new debt management program where you have a long term payment plan to pay off the IRS at a reduced dollar amount.
- Filing bankruptcy: discharge your tax debts under the strict rules of a Chapter 7 or 13 bankruptcy petition.