Get Professional Tax Relief with an Offer in Compromise

The term “offer in compromise” is actually as formal—and somewhat complicated—as it sounds. When it comes to getting professional tax debt help, the IRS has somewhat of an upper hand in the compromise process, though. To work out a deal with the IRS, you might want to seek professional tax relief advice. Read on... 

Here’s how the IRS describes the process:

 “An offer in compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can't pay your full tax liability, or doing so creates a financial hardship.”

The “offer” part comes from a taxpayer who needs to settle up with the IRS; the compromise is simply an IRS acknowledgment that it might as well settle for less than what is owed, which is substantially more than nothing. It is, however, not the taxpayer’s first option in settling tax indebtedness.

If the numbers (assets and income versus debts and liabilities) don’t subtract to the taxpayer’s detriment (or favor, depending on how you view the situation), the taxpayer probably needs to go the installment payment route and pay off the debt (along with penalties) over time.

If the taxpayer can show that borrowing money to pay off the full debt or paying in installments are not within the realm of options, the IRS will accept an Offer in Compromise.  It sounds simple, but, not surprisingly, when it comes to convincing the IRS to accept less than what is owed, there is a list of qualifiers, computations and form filling challenges that have to be surmounted:

To be eligible to submit an offer in compromise you must:

• have filed all your tax returns
• have paid any required estimated tax payments for the current year
• be up to date with any required federal tax deposits if you are a business owner with employees
• not currently be undergoing bankruptcy proceedings
• submit the forms and come up with the $150 application fee (unless you’re an individual who meets the Low Income Certification guidelines -- see page 2 of IRS Form 656)

The paperwork

The IRS Form 656 Booklet outlines the seven steps involved in completing the necessary documentation. Before you go there, though, it would be a good idea to complete the online “Offer In Compromise Pre-Qualifier” to see if you might be eligible for a reduced tax bill.  Complete the six-part questionnaire and see if you’re eligible and get an estimate on how much you can lower your tax bill.

Follow the money (again)

In addition to the $150 application fee, you’ll need to include an initial tax payment based on 20 percent of the payment type (lump-sum or periodic) you chose. It’s all nonrefundable, and the money you send with your application forms will be credited to your tax liability, whatever the outcome.

Stay on the straight and narrow

Important: If your offer is approved, you’ll need to be on your best behavior for five years. Your acceptance agreement includes a statement that you “agree to file and pay all taxes as required by the Internal Revenue Code for five years from (the date of the acceptance letter).” If you fail to do that, the IRS considers your first Offer in Compromise void and will come after you for the full amount of your original tax bill -- among other liens, levies and seizures at their disposal.