Offers in Compromise

According to Benjamin Franklin, nothing is certain but death and taxes. That means you can’t avoid getting a tax bill at some point. But what happens if you can’t pay it? In some cases, you may be able to pay off your tax debt for a lower amount. The program that lets you do this is called an offer in compromise.

This article discusses an offer in compromise. Unfortunately, not everyone is eligible to reduce their tax liability using this method. Talking to a tax attorney familiar with offers in compromise in your area is a good idea. They can give you legal advice and help you apply for the program.

What Is an Offer in Compromise?

The offer in compromise lets you settle your tax liability for a reduced amount. The Internal Revenue Service (IRS) administers the program. It’s for people who can’t pay the full amount of their tax bill or would suffer financial hardship if they paid it.

Only some qualify for the program. The IRS looks at your unique situation when deciding if you are eligible. That includes the following factors:

• Ability to pay
• Income
• Expenses
• Assets

The IRS will accept your offer amount if it’s close to your reasonable collection potential. Your reasonable collection potential is the most the agency can expect to collect from you. You should try all the options available to pay your tax bill before you apply for an offer in compromise.

Am I Eligible for an Offer in Compromise?

The offer in compromise is only available to eligible taxpayers. The IRS has a pre-qualifier tool on its website to see if you can make an offer. The pre-qualifier tool is a guide. It’s not the final decision about whether you’re eligible. You may qualify if you meet the following criteria:

• You filed all your required tax returns
• You made all your required estimated payments
• You aren’t in an open bankruptcy proceeding
• You have a valid extension for your current tax return if you apply for the current tax year
• You have made the required tax deposits if you are an employer

If you’re not eligible, you may be able to pay your taxes through a payment plan. The IRS will determine a monthly payment that lets you catch up on your taxes. The agency bases the payment amount on your assets, income, and expenses. A tax professional can give you advice about your eligibility.

What Are My Payment Options?

You have two payment options for an offer. You must select one when you apply. You must also include your initial payment with your offer. The amount of your first and following payments depends on how much you offer and the payment option you pick. The payment options are the lump sum offer and periodic payment offer.

If you offer a lump sum, you must include 20% of your offer with your application. If the IRS accepts your offer, you must pay the remaining balance in no more than five payments. You must make the payments in no more than five months.

If you offer a periodic payment, you must include your first offer payment with your application. You must keep making monthly payments while the IRS decides if it will accept your offer.

What Happens After I Submit an Offer?

Submitting an offer along with your application fee starts the process. The IRS will review your application and let you know if it has accepted your offer. If the IRS doesn’t accept your offer, it doesn’t return your payments or application fee. It instead applies them to outstanding tax bills.

While the IRS processes your application, it puts its collection activities on hold. But it may file a Notice of Federal Tax Lien. You also don’t have to make payments under an installment agreement.

The IRS must tell you how it determines your ability to pay. It must also tell you how it calculates your reasonable collection potential. You have 30 days to file an appeal if the IRS rejects your offer,

When Do I Need a Lawyer’s Help?

You have options if you can’t pay your tax bill. An offer in compromise allows you to pay your taxes at a fraction of the total amount you owe. However, not everyone is eligible for the program. Contacting an offer-in-compromise lawyer is a good idea if you need help. They can explain the program and help you apply.