Offer and Compromise is the most desirable solution for people with tax problems, but unfortunately the most difficult solution to obtain. When a tax payer goes against the IRS or state without an attorney representing them they are setting themselves up for catastrophic failure. The IRS is the largest collection agency in the world with the broadest powers for collections and income and property seizures.
The most basic way to explain Offer and Compromise is: The IRS or state is willing to take less money for what is owed by the tax payer (see: taxable income) and consider their debt paid in full. The IRS definition of an Offer and Compromise is as follows:
Definition – What is offer in compromise?
This is the complicated process and yet desirable for the tax payers who are facing tax problems. The Internal Revenue System has evolved a system in the form of Offer in Compromise (OIC) to settle all outstanding tax along with interest and penalties in the form of one lump sum payment which is less than the total amount. Tax Attorneys plays a very important role in bringing negotiation relating to payment plan on behalf of the taxpayers who are unable to make the back payment in one installment.
We generally approve an offer in compromise when the amount offered represents the most we can expect to collect within a reasonable period of time. Explore all other payment options before submitting an offer in compromise. The Offer in Compromise program is not for everyone. If you hire a tax professional to help you file an offer, be sure to check his or her qualifications.
Offer in Compromise Infographic
Are you eligible?
Before IRS considers your offer, you must be current with all filing and payment requirements. If you make offer it is very necessary that
- You have paid federal taxes and estimated taxes.
- You have filed all the tax returns which are necessary and to be filed by you.
The negotiation under OIC is a lengthy process and it may take 6 months also, but in between whatever your future taxes are pending you have to deposit it regularly, otherwise your OIC can be rejected. When OIC is submitted, a deposit should also be submitted which should be 20% of the amount offered in settlement to be given in lump sum.
Taxes under trust fund
Any business you are doing and such business owes taxes under trust fund , in this situation, responsible persons be made liable for such taxes and you are not eligible for making any offer till the taxes under the trust fund is paid. Taxes under trust fund are the money which are withheld from employee’s wages, such as income tax and social security.
You are not eligible.
You are Non – Eligible if you are in an open bankruptcy proceeding.
Use the Offer in Compromise Pre-Qualifier to confirm your eligibility and prepare a preliminary proposal.
Why Select a Tax Professional to handle your Offer in Compromise ?
Selecting a Tax Professional to handle your Offer in Compromise is the best option. Having an professional IRS tax attorney San Jose represent you before the IRS will help ensure that all letters and phone calls from the IRS are handled quickly and professionally. We will help you create a backup strategy for handling your tax debt. But in the end, it is up to the IRS to make a decision about your case.
You may also want to read: “I owe the IRS years of back taxes, what are my options?”
Want to Settle your IRS debt with an Offer in Compromise?
Your completed offer package will include:
IRS Form 433-A (OIC) – Read Online – Download
Fill out Form 433-A(OIC) if you are an individual wage earner and/or a self-employed individual. This will be used to calculate an appropriate offer amount based on your assets, income, expenses, and future earning potential.
IRS Form 433-B (OIC) – Read Online – Download PDF
Complete Form 433-B(OIC) if your business is a Corporation, Partnership, Limited Liability Company (LLC) classified as a corporation, Other multi-owner/multi-member LLC, or Single member LLC
Form 656(s) – individual and business tax debt (Corporation/ LLC/ Partnership) must be submitted on separate Form 656;
- $186 application fee (non-refundable); and
- Initial payment (non-refundable) for each Form 656.
If you meet the Low Income Certification guidelines, you do not have to send the application fee or the initial payment and you will not need to make monthly installments during the evaluation of your offer. See your application package for details.
While your offer is being evaluated:
- Your non-refundable payments and fees will be applied to the tax liability (you may designate payments to a specific tax year and tax debt);
- A Notice of Federal Tax Lien may be filed;
- Other collection activities are suspended;
- The legal assessment and collection period is extended;
- Make all required payments associated with your offer;
- You are not required to make payments on an existing installment agreement; and
- Your offer is automatically accepted if the IRS does not make a determination within two years of the IRS receipt date.
From our experience when a tax payer submits an Offer without the help of an attorney the chances of them getting their offer accepted is under 20%. Once an Offer is rejected not only has the tax payer not received the Offer and Compromise they were hoping for; they have given the IRS or state a roadmap to their assets and how they can go about collecting the total amount of the money owed, plus penalties and interest.
The application alone is thirty two (32) pages, and more than half of them submitted to the IRS are incomplete or incorrect and returned unprocessed. If you want to see what the current Offer and Compromise application looks like, See PDF above. Be warned that a non-attorney attempting to complete the application is equivalent to a non-medical person attempting brain surgery. Don’t fall victim to the IRS goals of having you fill out the application and giving them all the information they need to take what you have worked so hard for.
DOWNLOAD – HERE
What is the time period when OIC is accepted?
When OIC is accepted cash is to be paid within the time period of 90 days or less
Whatever be the Short-term deferred tax liability is pending the same is to be paid in more than 90 days, up to 24 months.
To whom the appeal against OIC is made?
When Offer in Compromise is rejected, the sufferer can appeal to the IRS Appeals Office, or to the United States Tax court.
What is Form 656-L in Offer in Compromise?
As we have already described earlier that in offer in compromise an agreement is reached between the taxpayer and the Internal Revenue Service in relation to settlement of tax debt for less than the full amount owed. If there is any doubt in relation to tax debt that you owe or part of it, you have to complete Form the 656-L of offer in compromise ( Doubt as to liability).
If there is no dispute from your side in relation to amount of the tax debt, you should not file Form 656-L. If you submit offer application it totally depends on the IRS whether to accept it or not. IRS will review your application for all angles.
What is Doubt as to Liability offer?
Doubt as to liability exists when there is a genuine dispute as to the existence or in relation to the amount of the correct tax debt under the law. There will be no doubt as to liability if the tax debt has been established by the judgment of the court of if the tax debt is based on the current law. A doubt as to liability offer only be accepted for the tax period/periods in question. If you do not take action in this regard, you cannot file Form 656-L.
What documentation you have to file in support?
It must be supported by relevant documentation or evidence that will provide help to IRS in identifying the reason/reasons you doubt the accuracy of the tax debt. You have to also provide statement in written form as to why tax debt or portion of the tax debt is incorrect.
Difference : Doubt as to Liability Offer / Doubt as to Collectability Offer
Doubt as to Liability offer is an offer in compromise and is based on a legitimate doubt in relation to any debt or part of debt you owe to IRS and you have to fill Form 656-L, whereas in the case of Doubt as to Collectability offer you agree that your owe taxes but you cannot pay your tax debt in full. To be considered under this you have to make an appropriate offer on what the IRS considers your appropriate ability to pay. Under this you have to fill Form 656-B. You may also get Form 656-B by calling toll free number 1-800-829-1040 or by visiting local IRS office.
As you can see the IRS laws are not only confusing , but limiting to a tax payer who does not have the expertise and experience in submitting an Offer and Compromise. Hiring an attorney to compose and paint the best picture for the IRS or state to review for an Offer and Compromise is the best chance for an Offer to be accepted. A tax relief attorney who specializes in Offers and Compromises and deals with the IRS and their revenue officers on a daily basis is a tax payers best chance in getting an Offer accepted. As the old adage goes, a person who represents themselves in court, has a fool for a client.
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