IRS Tax Debt Relief Program: Settle Your Tax Debt with an Offer in Compromise
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Introduction
Owing tax debt to the IRS can be a daunting situation, especially when you can't afford to pay the full amount. However, there is a solution that may provide relief: the IRS Tax Debt Relief Program. One of the options within this program is an Offer in Compromise (OIC), which allows you to settle your tax debt for less than the total amount owed. In this article, we will explore the eligibility requirements, application process, payment options, and the overall process of the IRS Tax Debt Relief Program.
Understanding the Offer in Compromise
An Offer in Compromise is a legitimate option for individuals and businesses who are unable to pay their full tax liability or if doing so creates a financial hardship. The IRS evaluates each case based on the unique set of facts and circumstances, including the ability to pay, income, expenses, and asset equity.
The primary goal of the Offer in Compromise program is to collect the maximum amount possible from the taxpayer within a reasonable period of time. Before considering an offer, it is essential to explore all other payment options available to you. Additionally, if you decide to hire a tax professional to assist you with the process, ensure that they are qualified and reputable.
Who Is Eligible for an Offer in Compromise?
To be eligible for an Offer in Compromise, certain criteria must be met. These criteria include:
Filing all required tax returns and making all required estimated payments: Before applying for an Offer in Compromise, it is crucial to ensure that you have filed all the necessary tax returns and made any estimated payments as required by the IRS.
Not being in an open bankruptcy proceeding: If you are currently involved in an open bankruptcy proceeding, you may not be eligible for an Offer in Compromise until the bankruptcy process is complete.
Having a valid extension for a current year return (if applying for the current year): If you are applying for an Offer in Compromise for the current tax year, ensure that you have a valid extension in place for filing the return.
Being an employer and making tax deposits for the current and past 2 quarters (if applicable): If you are an employer, it is necessary to have made the required tax deposits for the current and past two quarters before applying for an Offer in Compromise.
Applying for an Offer in Compromise
To initiate the process of applying for an Offer in Compromise, you need to complete an application package. The application package consists of the following forms:
Form 433-A (OIC) or Form 433-B (OIC): Depending on whether you are an individual or a business, you need to fill out the appropriate form. These forms require detailed information about your income, expenses, assets, and liabilities.
Form 656(s): This form is used to submit your individual and business tax debt information separately if applicable (Corporation/ LLC/ Partnership).
In addition to the forms, you are required to pay a non-refundable application fee of $205 and an initial payment, which is also non-refundable. The initial payment amount varies based on your offer and the payment option you choose.
Payment Options for an Offer in Compromise
When applying for an Offer in Compromise, you have two payment options to consider based on your financial situation:
Lump Sum Cash Option: Under this option, you submit an initial payment of 20% of the total offer amount along with your application. If the IRS accepts your offer, you will receive written confirmation. The remaining balance must be paid in five or fewer payments.
Periodic Payment Option: With this option, you submit an initial payment along with your application, and then continue to pay the remaining balance in monthly installments while the IRS considers your offer. Once your offer is accepted, you must continue making monthly payments until the debt is fully paid.
Low Income Certification Guidelines
If you meet the Low Income Certification Guidelines, you may have certain exemptions when applying for an Offer in Compromise. These exemptions include:
- Not having to send the application fee or the initial payment.
- Not being required to make monthly installments while the IRS reviews your offer.
For more information on the Low Income Certification Guidelines, refer to Form 656-B, the Offer in Compromise Booklet.
The Process of Evaluating an Offer in Compromise
While the IRS evaluates your offer, several key steps and considerations are involved:
Allocation of Payments and Fees: The non-refundable payments and fees you submit with your offer are applied to your tax liability. You have the option to designate payments to a specific tax year and tax debt.
Notice of Federal Tax Lien: The IRS may file a Notice of Federal Tax Lien during the evaluation process. This lien serves as a legal claim against your property to secure the payment of your tax debt.
Suspension of Collection Activities: Once an Offer in Compromise is submitted, the IRS suspends most collection activities, providing temporary relief from levies and garnishments.
Extension of Legal Assessment and Collection Period: The submission of an Offer in Compromise extends the legal assessment and collection period for your tax debt. This means that the IRS has additional time to review and make a determination on your offer.
Required Payments per Offer: If your offer is accepted, you must make all the required payments as outlined in your offer agreement. Failure to comply with the terms may result in the IRS reinstating collection activities.
Existing Installment Agreements: When your offer is accepted, you are not required to make payments on any existing installment agreements you may have with the IRS.
Automatic Acceptance: If the IRS does not make a determination on your offer within two years of receiving it, your offer is automatically accepted. However, this timeframe does not include any appeal periods.
Accepted Offers: Meeting the Offer Terms
If your Offer in Compromise is accepted by the IRS, you must fulfill certain obligations outlined in Section 7 of Form 656. These obligations include:
- Filing all required tax returns promptly.
- Making all payments as specified in the offer agreement.
- Ensuring that all future tax obligations are met.
It is important to note that the IRS will not release federal tax liens until all the terms of your offer have been satisfied. Additionally, certain offer information may be available for public review upon request.
Rejected Offers: The Appeals Process
In the event that your Offer in Compromise is rejected by the IRS, you have the option to appeal the decision within 30 days. To initiate the appeals process, you must complete the Request for Appeal of Offer in Compromise (Form 13711). The IRS Independent Office of Appeals can provide further assistance and guidance throughout the appeals process.
Conclusion
The IRS Tax Debt Relief Program offers individuals and businesses a viable solution to settle their tax debt through an Offer in Compromise. By understanding the eligibility requirements, application process, payment options, and the overall evaluation process, you can navigate the program effectively. If you find yourself in a situation where paying your tax liability in full is not feasible, consider exploring the option of an Offer in Compromise with the guidance of a qualified tax professional. Remember, the IRS is committed to working with taxpayers to find a reasonable resolution to their tax debt.
