Before you can apply for an Offer in Compromise, you must first meet the IRS eligibility requirements:
First, make sure you have received a back tax bill from the IRS.
Next, get your current taxes in order. You must file all tax returns due and pay all required estimated taxes for the current year before offering to settle. If you are self-employed and have employees, you must submit all required federal tax deposits. If you help with filing back taxes, we can also help with.
Finally, if you are in open bankruptcy proceedings, you must wait to make an Offer in Compromise with the IRS.
If you are eligible to apply for an Offer in Compromise, you should carefully assess your prospects before submitting an offer. If you aren’t a good candidate, applying for a settlement can waste time and money better spent pursuing another tax relief option.
Who Gets Approved for an Offer in Compromise?
The IRS requires proof that you fall into one of the following categories before they’ll consider approving an Offer in Compromise:
Doubt as to Liability: Is it possible that you don’t owe the tax debt the IRS has assessed, or not in the full amount? If so, there may be doubt as to liability.
Doubt as to Collectibility: Can you demonstrate an inability to ever pay the full amount of tax owed? There may be doubt as to collectibility.
Effective Tax Administration: If you can’t make a case for doubt as to liability or doubt as to collectibility, there is another option. The IRS may accept an Offer in Compromise if an exceptional circumstance exists that would make it unfair or inequitable to collect the full amount owed.
The requirements are stringent and the IRS is a very powerful debt collector: they can put a hold on your tax refund, levy your wages and bank account, seize and sell your property and even take 15% of your Social Security. With so many options available, the IRS will only approve an offer to settle that fully meets requirements.
It’s our job to make a persuasive case that meets the full requirements for one of these categories and we do so through the application process.
Applying to Settle IRS Tax Debt
To apply for tax forgiveness, we complete an Offer in Compromise form, a Collection Information Statement and submit extensive supporting documentation. The IRS needs details on every aspect of your financial life to determine your “reasonable collection potential”.
With the application, you will need to submit a non-refundable application fee and initial payment towards the total Offer in Compromise. Some individuals may not be required to send an initial payment if they meet Low Income Certification guidelines.
For everyone else, there are two options when it comes to submitting a payment with your application:
Lump Sum Offer: Typically, you will submit 20% of the total offer amount and, if your offer is accepted, you’ll be required to pay the remainder within five or fewer months of the date the IRS formally accepts to settle.
Periodic Payment Offer: If you cannot pay the entire offer in five or fewer months, periodic payments may be right for you. You will be required to submit the first payment with your application and continue to pay monthly while the IRS is evaluating your offer. The final payment must be made within 24 months of acceptance.
Applying does not guarantee that the IRS will accept your settlement offer and forgive your debt. In fact, only about 40% of all Offer in Compromise proposals are accepted.
The IRS evaluates each application on a case by case basis. When your offer is deemed processable (i.e. you meet the eligibility requirements and the application is complete), it is assigned to an IRS examiner. The examiner’s job is to evaluate your application by auditing your assets, income and expenses to find the total worth of everything you own and your disposable income.
If the offer you submitted is less than what the IRS could collect through levies and seizure of assets, the settlement will be rejected. A high rate of errors or omissions in applications is also behind many rejections.
The job of the IRS is to collect debt, not to help you understand where you can improve your application. That’s where an experienced tax advisor comes in.
Working with Precision Tax Relief can change the odds in your favor. On average, we are successful in over 9 offers out of 10 offers we make on behalf of clients — twice the national average.
We know how to submit a successful application, but we also know how to accurately assess at the outset whether you will qualify. In fact, by the end of your free consultation, we will tell you whether you are a candidate for tax debt forgiveness.
Since 2011, we have helped more than 1000 clients across the country resolve their tax debt through the IRS Offer in Compromise Program. Many of our clients have saved over $100,000.
Get Help Settling Your IRS Tax Debt
Start with a no-obligation, free consultation now: (713)300-3965
"We owed $74k and settled for $3700. The tax experts as Advance Tax Relief did an amazing job on my case and I'm very grateful." - Mr. Oneal Smith
How is an Offer in Compromise Calculated?
Your tax settlement is calculated using a complex formula taking into account the equity in your assets and projected future income.
How long will I have to pay my Offer in Compromise Settlement?
The length of time given to a taxpayer to pay off their settlement depends on which settlement option the taxpayer chooses. There are generally two options for repaying an Offer in Compromise tax settlement.
Cash: Tax debt settlement amount must be paid within 5 months of acceptance.
Periodic Payment: Tax debt settlement must be paid in equal monthly payments and for as long as 24 months.
Can a Business file an Offer in Compromise?
The IRS has an Offer in Compromise program for businesses called the In-Business Offer in Compromise.
It should be noted this is notorious for being extremely difficult to negotiate, and the rates of success without a tax professional are incredibly low.
The main difference between the In-Business Offer and the Individual Offer, is that the IRS requires a business to, at a minimum, pay the Trust Fund portion of taxes in any settlement (the amount that was withheld from employee paychecks in the case of back payroll taxes).
Most company tax debts are payroll tax debts, so this is usually a problem. It means that your minimum settlement may be as much as 50% of your debt. Whereas, individuals can often settle for less than 1% of what they owe.
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