Can tax debt be reduced by an Offer In Compromise? For that matter, what is an Offer In Compromise? This is a program that lets a taxpayer settle, for only a portion of their owed tax liability, their tax debt. Just a couple of years ago, an all-time high was reached with a 43% acceptance rate.
How to Determine What You Need to Pay
What you pay to the IRS is not, contrary to what most people think, a percentage of what you already owe. Your Offer in Compromise, that will hopefully be accepted by the IRS, is, rather, based on what you can reasonably pay. They will look at the collection statute date of the debt, your income, equity, and assets.
If the amount that you propose is deemed acceptable, the IRS will do so. The want to believe, however, that it is as much as they can possibly get from you in the time allotted (the collection statute date). If they think they can get more, they’re going to give you a chance at negotiation. You’ll need to offer more or explain to them, in detail, why they should take the proposed amount that you offered.
How to Apply for an Offer in Compromise
IRS forms 656 and 433A (OIC) will need to be completed in order for you to submit your offer. Along with that, you will need to submit the $186 fee (some people qualify for a fee waiver due to low income status).
Offer proposal options are as follows:
- Deferred Offer – This is where you offer to submit payments, beginning with the month in which you start submitting them, for the next 12 months (or until the entire amount is paid).
- Lump Sum Offer of Cash – This gives you five months (from the proposal acceptance date) to pay the settled upon amount. Unless a low-income status qualifies you for a waiver, a 20% downpayment will need to be made.
To protect their interests, liens will be filed automatically by the IRS after your offer proposal has been submitted. You will receive a letter from them acknowledging their acceptance. The letter will include a date on which your case will be reviewed by an Offer Specialist or Offer Examiner. After the date of acknowledgment, it can take up to six months for one of these specialists to be assigned.
What to Do While You Wait for an Answer
All you need to do now is carry on. Practice good record-keeping regarding your expenses and income and maintain compliance with withholdings and filings. After the specialist examines your case, things start moving at a pretty fast clip. That’s why it’s important to have all the documentation you will need at the ready.
Once the specialist reviews your case, your account determination will be made by them, usually within 30 to 60 days. If it is accepted, your case is forwarded for official acceptance and judicial review. Then you will receive another letter from the IRS telling you that your offer has been accepted and the payment terms and conditions of acceptance. You will be given an Appeal Rights if the proposal is denied.
At Tax Defense Partners, we deal with all sorts of tax debt relief options. An Offer in Compromise is certainly one of them. Don’t leave something this important to chance. Let our seasoned, knowledgeable, dedicated professionals assist you in your dealings with the IRS. Contact us today for a free consultation. Don’t hesitate, because time is money, even when it comes to paying your taxes.