An Offer In Compromise Might Be a Path to Significant Tax Debt Relief

The IRS can be a steamroller when it comes to collecting back taxes. Taxpayers who ignore IRS notices do so at the risk of levies and liens that amount to crippling economic sanctions that will not go away until the debt is settled. On the other hand, the IRS does recognize that true financial hardship can reduce the likelihood of debt collection, in which case an Offer in Compromise could result in a substantial reduction in a tax debt.

Qualification criteria

Before a taxpayer can be considered for an Offer in Compromise, all tax files must be up to date. Also, undergoing a current bankruptcy proceeding is also a disqualifying factor. A taxpayer can get a preliminary determination on potential eligibility by completing the IRS Offer in Compromise Pre-Qualifier online.

What happens next

The IRS has a step-by-step booklet (Form 656-B) and an accompanying video. The steps require an honest disclosure of everything about the taxpayer’s financial situation -- income, assets, liabilities, expenses -- and the IRS uses a calculation to determine the maximum reduction for which the taxpayer can qualify.

The next step is to complete the forms required by the IRS and select a payment option that could include:

• lump-sum offer -- an initial payment of 20 percent of the total amount offered in compromise must accompany the offer.
• periodic payment -- an initial payment of the amount offered must accompany the offer.

Each of those options is in addition to the non-refundable $150 application fee, unless the taxpayer meets the IRS Low Income Certification guidelines.

What About the IRS Fresh Start Initiative?

In recent hard economic times the IRS had to ease up on citizens and businesses having difficulty paying back taxes. In addition to waiving some late penalties, the IRS streamlined the Offer in Compromise process and eased up on some of its rather inflexible determinations of value of assets and liabilities such as living expenses.

When in doubt…

The Fresh Start Initiative notwithstanding, you might have some valid doubts as to the actual amount of your adjudicated tax liability. Check out IRS Form 656-L, Offer in Compromise (Doubt as to Liability), which might not be all that helpful to the average non-expert layman. Reading that publication might be just the motivation you need to get some expert tax help.

That expert tax help is right here at Optima Tax Relief. We can help. Just tell us how much tax debt you have, what state you live in and you’ll qualify for a free evaluation by one of our Senior Tax Professionals.