What if you find yourself unable to pay your full tax burden to the Internal Revenue Service? Or, let’s say you are able to, but paying your tax liability in full would create an extreme financial hardship on you. What can you do about that?
Fortunately, the IRS offers something called an Offer in Compromise that may be available to you if you find yourself in these types of situations. If you are indeed eligible for this program, you might end up paying only a small percentage of the total amount owed. However, few people and businesses end up qualifying for this program. In 2017, 25,000 individuals and businesses settled their onerous tax burdens using an Offer in Compromise – out of around 19 million who owed the IRS. The vast majority of entities who owe the IRS use monthly installment payments to fulfill their tax burdens.
How Do I Know if I Qualify?
Generally, the IRS has 10 years to try to collect tax burdens. The IRS considers this period of time when assessing whether individuals qualify for an Offer in Compromise. If it is determined that you cannot feasibly pay the total amount you owe within this time period, then you have a good chance for eligibility. Bankruptcy filers are not eligible for an Offer in Compromise.
An important prerequisite for the Offer in Compromise program is that you must have filed all required tax returns up to the point of applying, along with any estimated payments. Business owners must have paid federal tax deposits for the quarter in which they apply. For more information on whether or not you are eligible, you can visit the IRS’s pre-qualifier questionnaire here: https://irs.treasury.gov/oic_pre_qualifier/. You can also get more information in our Guide to IRS Settlements here: IRS Settlements.
Three Types of Offers in Compromise
The most common type of Offer in Compromise used is the “Doubt as to Collectibility” type, which is for taxpayers who are unlikely to be able to pay the full amount over 10 years. The other two types are “Effective Tax Administration” for those who can technically pay but would be put in an extremely difficult financial situation, and “Doubt as to Liability,” which can be used if taxpayers can show they legitimately do not owe the amount the IRS claims they do.
What’s Required to Apply?
Two main forms need to be filled out when you apply for an Offer in Compromise: Form 656 and Form 433-A (OIC) (businesses will use Form 656 and Form 433-B (OIC)). Any documentation that supports your claim should also be included, as well as a $186 application fee. If your offer is rejected by the IRS, you have 30 days to appeal its decision.
Conclusion
While an Offer in Compromise is a viable option for some, it is difficult to qualify for and there is often a better option for those who owe the IRS. To better understand your options for satisfying the IRS, please reach out to us today to schedule an Initial Consultation on your situation.
Robert V. Boeshaar Attorney at Law, LL.M.,PLLC
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