Ten Things to Understand About the Offer In Compromise Option

An Offer In Compromise is just one option that taxpayers have for satisfying a federal tax debt. Here are ten things to understand about this option.

1. An Offer In Compromise is used when the taxpayer and the IRS both agree that the debt owed is more than what is financially possible for the taxpayer to pay, even via a long term payment plan or the seizure of assets. The components that the IRS uses to evaluate an individual's ability to pay include income, expenses and asset equity.

2. On average, individuals who settle their tax debt through an Offer in Compromise pay 20 percent less than the amount they actually owed to the IRS.

3. The Offer in Compromise is the maximum amount that the taxpayer can pay. If the IRS agrees to this amount, then the debt is considered "paid in full."

4. The acceptance rate for Offers in Compromise is relatively low, and offers are often rejected due to errors or omissions in their submissions. In order to obtain an acceptance, an individual must be able to prove that the payment of the tax debt would cause an economic hardship or would be unfair or inequitable.

5. In 2011, as part of the Fresh Start Initiative, the IRS announced that it had streamlined the investigation process involved in an Offer in Compromise in order for people to be able to have their offers accepted or rejected by the agency in a more timely fashion.

6. The new streamlined process includes efficiency measures such as fewer requests for information and the option to request information by phone instead of mail. In addition, the timeline for the repayment process was shortened to two years.

7. According to the IRS, offers can be paid in a couple of different ways, including a lump sum payment in which 20 percent is paid along with the offer application, with -- upon acceptance of the offer -- the remainder being paid off in five or fewer payments; or a periodic payment in which a payment is made with the application and monthly installments are made while the IRS considers the offer.

8. In order to utilize the Offer in Compromise option, one must not be in an open bankruptcy proceeding.

9. While your Offer in Compromise is being considered, the IRS may still be able to file a Notice of Federal Tax Lien. Tax liens are not released until the offer terms are satisfied. However, all other collection activities are suspended and the legal assessment and collection period is extended during the time of IRS consideration of your offer.

10. If your Offer in Compromise is rejected by the IRS, you may appeal this rejection within thirty days.

If you would like to know if an Offer in Compromise would be a good way for you to resolve your tax debt, contact the experts at Optima Tax Relief today.

Devin Finley is a freelance writer and tax relief expert. Devin writes on a multitude of financial and legal topics. He enjoys collaborating and strategizing with other professionals to ensure tax & debt clients receive competent and beneficial representation. For more information Visit http://optimataxrelief.com/