An offer in compromise is an agreement you can make with the Internal Revenue Service (IRS) to settle your tax debt for less than what you really owe. This form of tax relief can help people with significant back taxes achieve relief, which can mean the end for interest and penalties on overdue taxes.
How Does an Offer in Compromise Work?
An offer in compromise works when you approach the IRS with a lump-sum cash offer to settle your tax debt for less than its full value. The IRS will consider your offer, and if it believes what it can gain from your offer is greater than what it could achieve by spending time and resources on collection against you, it may accept your offer in compromise.
Am I Eligible for an Offer in Compromise?
The eligibility requirements for an offer in compromise include the following:
- You have filed all required tax returns and made all required estimated payments.
- You aren’t in an open bankruptcy case.
- You have filed a valid extension for a current year return (if you’re applying for an offer in compromise for the current year’s tax debt).
- If you are an employer, you made tax deposits for the current year and the past two quarters.
If you qualify, the IRS will assess whether or not to accept your offer in compromise. This comes down to factors such as your ability to pay the tax debt, your income level, your necessary expenses, and your asset equity.
How Much Should I Offer the IRS?
You should offer the IRS a sum of money that is greater than, or equal to, what the IRS calculates as your reasonable collection potential. Again, if the IRS believes accepting your offer is the best way to recover some of your tax debt, it’s inclined to do so – but nothing can be guaranteed.
You can consult with a tax attorney to learn more about your reasonable collection potential and how to estimate it.
Can I Offer Payment Other Than a Lump Sum?
Yes. Although lump-sum payments to settle tax debt might be the most attractive to the IRS, you can also offer to pay the IRS in monthly installments until the balance on your offer is paid in full.
What Happens If the IRS Rejects My Offer in Compromise?
If the IRS rejects your offer in compromise, it will return your application and application fee. If you made any initial payment with your offer, that amount will be credited toward your tax debt balance.
Should I Hire a Lawyer to Help Me with an Offer in Compromise?
Absolutely! You may only get one chance to reduce or eliminate your tax debt, so it’s wise to proceed with experienced legal support at your side. Our attorneys at Buchalter & Pelphrey Attorneys At Law can provide the legal support and services you need to come up with an offer in compromise to the IRS that can increase your chances of achieving tax debt relief.
Learn more about how we can help during a free consultation. Contact us now to learn more.