Resolving Tax Debt on Terms You Can Meet.
An offer in compromise allows some taxpayers to settle a tax debt for less than the full amount owed. We evaluate whether an offer is realistic, prepare and present it, and consider the alternatives, such as installment agreements and hardship status, when an offer is not the right fit.
Grounds for an Offer
Doubt as to collectibility
The taxpayer’s assets and future income are less than the full amount owed.
Doubt as to liability
There is genuine doubt that the assessed tax is correct.
Effective tax administration
Full payment is possible but would cause economic hardship, or would be unfair and inequitable because of exceptional circumstances.
How an Offer Works
What the IRS considers
The IRS looks at ability to pay, income, expenses and asset equity. An offer generally must reflect what the IRS could reasonably expect to collect.
The application
Form 656 with the required financial statements, a $205 non-refundable application fee and an initial payment: 20 percent of the offer amount for a lump sum offer, or the first payment for a periodic payment offer, with monthly payments continuing while the offer is considered. Taxpayers who meet the low-income certification guidelines do not send the fee or the initial payment.
Filing compliance
Required returns must be filed and current-year estimated payments made before the IRS will consider an offer.
A preliminary view
The IRS Offer in Compromise Pre-Qualifier tool gives a first look at eligibility. A detailed review of the financial statements comes next.
Alternatives
Installment Agreements
Monthly payment plans. Some can be set up without a detailed collection information statement.
Currently Not Collectible Status
When paying would cause financial hardship, the IRS may suspend most collection activity. The debt is not forgiven, and penalties and interest continue to accrue.
Penalty Relief
First-time abatement or reasonable cause relief may reduce the balance.
Collection Due Process
A timely hearing request after a final notice of intent to levy allows these options to be raised before the IRS Independent Office of Appeals.
Owe More Than You Can Pay?
Contact Advantage Tax Law for a confidential review of your options.