Offer in Compromise
IRS Tax Settlement
AN OFFER IN COMPROMISE is a way for a taxpayer(s) (individual or married couple) to settle IRS tax debt for less than what is owed. In many cases a resolution can be reached with a person only having to pay pennies on the dollar in order to settle his/her tax debt in full. A properly submitted and approved Offer in Compromise is a way for a taxpayer to receive a true fresh start from IRS tax debt.
THERE ARE SEVERAL REQUIREMENTS for an offer in compromise. In theory, an Offer in Compromise is a way for the IRS to settle an outstanding obligation for what the IRS would be able to collect from the taxpayer within a specified period of time if the IRS pursued the taxpayer with all available collection means, such as wage garnishment, bank account levy, and/or the seizure of property. Rather than have the IRS fully pursue these rights and devastate a taxpayer and the taxpayer’s family through the enforcement, a taxpayer is able to resolve the obligation for less than what is due. Resolution can be in the form of a lump sum payment, or periodic payments to the IRS for the complete settlement of the debt. Not everyone has the ability to qualify for an Offer in Compromise. A skilled legal representative, specifically a tax attorney licensed to represent taxpayers with the IRS, is a very important aspect to properly evaluating the likely success of this type of tax resolution.
WHEN SUBMITTING AN OFFER IN COMPROMISE the taxpayer, through their legal representative, a tax attorney, must fully disclose all income and assets to the IRS utilizing specific IRS forms and procedures. The IRS will notify the taxpayer and the taxpayer’s legal representative that the offer has been received. As outlined above, this will stop collection efforts while the offer is being evaluated. It generally takes multiple months for an offer to be determined. During this period of time, the IRS will usually discuss and negotiate the terms of the offer with the taxpayer or the taxpayer’s legal representative. Once terms are reached, the IRS will accept the offer and payment terms must be followed by the taxpayer.
THERE ARE TWO PAYMENT OPTIONS for an offer in compromise that can be requested. Unless a taxpayer meets certain low income guidelines, the submission of an Offer in Compromise requires a $186 filing fee to be paid to the IRS.
A LUMP SUM PAYMENT where a taxpayer must submit 20% of the propose settlement to the IRS when delivering the Offer in Compromise for consideration, unless the taxpayer meets certain low income guidelines. However, no additional payments are due until after the offer is accepted. Once the offer is accepted, a taxpayer must pay off the remaining offer amount within 5 months of acceptance. It must be remembered that it could be multiple months (3-8) prior to the IRS accepting a submitted offer. This provides a taxpayer with an extended period of time to save the funds necessary to resolve the issue.
PERIODIC PAYMENTS where a taxpayer must make an initial payment when submitting the offer and then must make continued payments for 6-24 months until the offer amount is paid in full. Unlike with the lump sum payment option, a periodic payment schedule requires the taxpayer to make payments while the offer is being determined. However, if a taxpayer meets certain low income guidelines, no payments are due until the offer is accepted.