Offers in Compromise: The Real Facts about Settling Tax Debt

Offers in Compromise Guidelines

offers in compromise adviceYou've probably seen commercials claiming you can settle back tax debt for "pennies on the dollar" and wondered if it was too good to be true. In reality, this is an exaggeration. Some people do qualify to settle their debt for a lower amount, but the savings aren't that dramatic. This page will help you figure out if you qualify for Offers in Compromise, how to file for it, and what to expect after filing.

Who Qualifies for Offers in Compromise

To make any sort of agreement with the IRS regarding your taxes, you cannot be in bankruptcy or have missing tax returns. For Offers in Compromise agreements, there are also three factors that influence if your Offers in Compromise will be accepted.

Doubt as to Collectibility - This condition states that you cannot possibly pay your entire tax debt before the statute of limitations runs out (usually ten years after the debt was assessed). This is proven by disclosing all of your finances with a formula that calculates the cash and equity you will likely acquire in the next 48 to 60 months.

Doubt as to Liability - This condition states that the assessed tax debt is incorrect. The taxpayer must prove this to the IRS using a Form 656-L and other supporting documents.

Effective Tax Administration - This condition states that paying the debt in a lump sum or in payments would cause great financial hardship in the taxpayer's life. The taxpayer needs to prove that collecting on this debt would be unfair due to exceptional circumstances.

How to File Offers in Compromise

To file for Offers in Compromise, you need to fill out the Offers in Compromise booklets, known as 656-B Forms. These include the following forms:

  • Form 656 - Used to prove Doubt as to Collectibility and Effective Tax Administration.
  • Form 656-L - Used to prove Doubt as to Liability.
  • Form 433-A for individuals or Form 433-B for businesses.

Along with your Offers in Compromise forms, you will need to submit a non-refundable application fee of $150 and the initial non-refundable payment, which should be 20% of what you are offering for your tax debt settlement.

When Offers in Compromise Are Accepted

Tax work continues after Offers in Compromise are accepted. Your refunds will still be applied to your tax debt and any liens will not be released, until your offer terms are fully satisfied. You must abide by the conditions you agreed to in Section 8 of Form 656. This includes filing and paying future tax returns on time for the next five years. If you do not meet the terms of your agreement, the IRS may levy or sue you.

When Offers in Compromise Are Rejected

You have the right to appeal rejected Offers in Compromise within 30 days of the rejection with a Form 13711. However, it is not usually recommended unless you hire a tax debt professional to help you. You may want to look out for the following after Offers in Compromise rejections:

  • Federal Tax Liens
  • Bank Levies
  • Wage Garnishments
  • Seizures of Property and Assets

Remember, by disclosing your finances, you have shown the IRS just where it needs to go to collect against you. If you are not completely certain that you will be accepted, you may want to reconsider filing for Offers in Compromise.

If you think you may qualify for Offers in Compromise or want to explore other tax debt solutions, consult a professional. Call now or fill out the form below for a free tax debt consultation to see if filing for Offers in Compromise will work for you! We'll only connect you with a tax debt relief company holding at least a B rating with the Better Business Bureau.

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