Offer in Compromise
Offer in Compromise is a way by which you can try to settle tax debt if it all you have any currently. You can negotiate an amount which will be less than what you owe to clear the debt. It is basically an agreement in between the taxpayer and the Internal Revenue service (IRS). There are a few conditions to be eligible for Offer in Compromise. They include:
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Doubt as to Liability: The debtor has to show a reason that the assessed tax liability is valid. It can happen when an examiner made some mistakes while trying to interpret the law properly, or he could not consider the tax payers proof. |
| 2. |
Doubt as to Collectability: The debtor can try to show that the debt can hardly be collectible in any conditions by the IRS. Here the debtor has to show that by his regular monthly income and expenditure, he cannot pay his regular tax dues. |
| 3. |
Effective Tax Administration: The debtor can show that the debt collected would create economic difficulty and would be highly unfair. |
If you can prove or show atleast one of the above conditions then you can be eligible for Offer in Compromise. Now there are three payment options for the Offer in Compromise.
The application fees for the Offer in Compromise is of $150, some initial payments and the Form 656 and the Form 433-A. Now once your Offer in Compromise is approved you have to take care such that IRS does not get a chance to revoke your Offer in Compromise. For that you should make sure that:
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You should file taxes on exact time for the coming five years and do not default in any case. |
| 2. |
Try to request for an automatic extension if you are unable to pay the taxes by April 15th. And by any means try to pay by the end of the extended period. |
| 3. |
Make sure that you don’t have any due balance by April 15th or the extended deadline, in case you miss the April 15th deadline. |
Keep in mind that only a fraction of the entire Offer in Compromise applications is approved. Statistics reveal that only 16% of the entire Offer in Compromise applications was approved in the year 2004. First of all they should be able to process your application, for which you need to provide all the supporting documents to validate your Offer in Compromise. On top of that it will take more than an year or two to get the process complete for the Offer in Compromise. The processing by the IRS consumes the maximum amount of time in the range of 13-18 months. So getting all the documents ready would be an added advantage if you want your application to be approved fast.
So you can start working on the IRS Form 433b, 433A and 656 and collect all the documents that you will need for the Offer in Compromise approval process. After filling all the necessary forms you should submit them at the right IRS service center. Alternatively you can also consider installment agreement to clear off your tax debts. But first and foremost its worthwhile to try for Offer in Compromise process.
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