IRS Offer in Compromise

An IRS offer in compromise enables taxpayers to pay off their unpaid tax at a reduced amount. If you have an unpaid tax that you want to settle, IRS Offer in Compromise can help you pay off tax liability in full without paying the total amount owed. However, as the name speaks for itself, you’ll need to make an offer to the IRS to settle your tax debt. The main purpose of Offer in Compromise is to find a middle point that will benefit both the taxpayer and the Internal Revenue Service

Eligibility requirements for Offer in Compromise

The eligibility for an Offer in Compromise isn’t anything strict. From the time you make an offer to the Internal Revenue Service, you must’ve filed any tax returns that you’re supposed to. 

If you haven’t filed even a single year’s federal income tax return, you must do that; and in addition to that, you must have received a bill for at least one tax debt included on your offer. Since the IRS cares about taxpayers being up to date with their tax payments, you must have paid all the estimated taxes and made tax deposits for the current tax year. For example, if you owe $20,000 to the Internal Revenue Service from 2018 to 2024, you must be current with your 2024 estimated tax payments. 

In a case where even a single one of these conditions isn’t met, your offer will be rejected. Make sure that you’re eligible for it first before you think you can pay off tax liability right away.

How much should I Offer in Compromise to the IRS?

There isn’t a specific amount or a percentage of the owed tax that the Internal Revenue Service accepts. Everyone’s situation is different and because of that, there isn’t an answer that applies to everyone to the question. One thing about this though, you should make an offer to the IRS that’s as close to the original debt. 

The IRS Offer in Compromise has only a 40% approval rate. The Internal Revenue Service denied the offers of 37,000 taxpayers out of 62,000. The statistics speak for themselves, so don’t think of the IRS as someone you can bargain toughly. 

Things to know about Offer in Compromise

  • The Internal Revenue Service won’t accept your offer if you have the ability to satisfy the debt in full.
  • If you get a refund for the current year, the IRS will count it towards your debt. However, your refund isn’t considered as a part of your initial offer.
  • Taxpayers that doubt the total amount can actually appeal for it. You can file Form 656-L with the IRS and your liability will be re-calculated.
  • There is an application fee of $205 for making an Offer in Compromise.

How to apply for an Offer in Compromise?

File Forms 433-A and 433-B, and attach them to Form 656. This is your application document for Offer in Compromise. You may also need to attach additional documentation. Regardless of your case, make sure that every supporting document is included in your application. 

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