Getting an Offer In Compromise accepted, step by step.
An Offer In Compromise is a settlement with the Internal Revenue Service (“IRS”) or State tax authorities for less than the tax amount owed. Financial inability to pay is the reason most Offer In Compromises are accepted. We must prove that you do not have the ability to pay back the tax debt within the Collection Statute Expiration Date. This means you do not have assets you could sell to pay off the debt in full and you do not have sufficient income to pay the debt back over time. When it comes to getting a State Offer In Compromise accepted there can be additional variables. For example, the California Franchise Tax Board considers your age in addition to your financial circumstances.
If you prefer to watch a video on the subject, scroll down to the bottom.
Is an Offer In Compromise right for you?
IRS Offer In Compromise Acceptance
Good chance you would qualify for an IRS Offer In Compromise if it seems like you are having trouble making your monthly expenses and have no assets to pay the balance off. If you owe a very large balance there also still might be an option even if you are not living paycheck to paycheck and do have some assets.
There are other types of Offer In Compromise like Doubt as to Liability and Effective Tax Administration. We need to prove the specific circumstances of the offer for those types and sometimes they will go through. If you do qualify based on your financial situation then that is the best and easiest Offer In Compromise to do. Offer In Compromise for Doubt as to Liability and Effective Tax Administration are hard to get through.
Check out our Offer In Compromise guide. This is one of the best ways to see if you can get an Offer In Compromise accepted with the IRS. It was updated to 2017 forms and will run you through the process from start to finish. You can also call one of our tax attorneys at (888) 515-4829. We will give you a realistic outlook on whether you have a chance or not and give you the best options available for your tax debt.
State Offer In Compromise Acceptance
Most states (especially CA and NYS Offer In Compromise) are harder to get an Offer In Compromise accepted in compared to the IRS. Michigan Offer In Compromise is actually much easier than the IRS. They just require that you show proof you had an IRS Offer accepted and most of the time it slides through. States have their own intricate Offer In Compromise details. We will save that for our state-by-state Offer In Compromise guides. Many tax resolution cases end up with a state payment plan and an IRS Offer In Compromise accepted.
Why are states harder than the IRS most of the time to get an Offer In Compromise accepted?
1) The state balance is usually much lower than the IRS balance already and this means it is harder to prove that you are going to have a hard time paying it.
2) States do not have to go by the IRS Collection Standards. Using IRS collections figures is what makes the IRS Offer In Compromise get accepted.
3) States often will consider other factors like age in determining your collectibility.
4) Many states have a longer Collection Statute Expiration Date and this means they have more time to collect. The IRS usually has 10 years. California has way more time with 25 years running on the clock.
How To Apply For An Offer In Compromise
There are a series of Offer In Compromise forms that go with an IRS offer and this varies if you are trying to get a business Offer In Compromise accepted instead of an individual one. We will break it down by business and personal.
You or your representative need to submit the following documents:
Business Offer In Compromise
- Form 656.
- Form 433-B(OIC) and supporting documentation.
- A check for a $186 processing fee or pay online.
- A check for 20% of the total offer amount or pay online.
Individual Offer In Compromise
- Form 656. This includes Form 656 and Form 656A. Make sure you or your representative checks the fee waiver if you qualify.
- Form 433-A(OIC) and supporting documentation.
- A check for a $186 processing fee or pay online. This is not needed if you qualify for the fee waiver.
- A check for 20% of the total offer amount or pay online. This is not needed if you qualify for the fee waiver.
Offer In Compromise Forms
Download the forms for business and personal IRS Offer in Compromise on our page for tax relief forms. On our site, we break down the forms into separate forms to make it easier. You can also download the full IRS OIC booklet here. We put a cover letter as well with our client’s submitted Offer In Compromise documentation. You or your representative’s name, address, and phone should be on the cover letter. We recommend adding a cover letter especially if there is anything further to explain that could not be fit within the forms. Explain medical conditions, hardships, disasters, and anything that could possibly be considered to help get your Offer In Compromise accepted.
Getting Your Offer In Compromise Through: Proper Preparation is Key
Unfiled Tax Returns
You also cannot have any unfiled tax returns. Your Offer will be returned if you do. We will call the IRS prior to an Offer In Compromise submission to make sure no unfiled tax returns are outstanding and to put a hold on collections until the settlement is in pending status. If you had sufficient income to require filing and you do not file before you submit your settlement, the Offer will be returned. When an Offer In Compromise is returned, there are no appeal rights. Your down payment goes towards the tax debt and you are sent back the $186 application fee.
Estimated Tax Payments or Correct Withholding
The IRS is also requiring that you be current on all estimated tax payments for self-employed individuals as of 2017. We have found some IRS agents will let you pay in full when the next tax return is due as long as you are current for this quarter’s estimated payments. However, we tell the client’s not to rely on that to get their offer through. It is best to have all your estimated tax payments current. If collections are imminent, it may be better to place your case into Currently Not Collectible status for the rest of the year. Then file the current year early next year. From there keep current. See our guide on how to make Estimated Tax Payments.
Make sure your withholding is set correctly if you are a wage earner. If you are single and only have yourself as a dependent, claim Single and 1. If married, you and your spouse should be claiming the correct amounts so there is no debt at the end of the year. You will lose any tax refund for the year in which your Offer In Compromise is accepted, and any years in which it is pending. So do not overpay your current taxes either.
Make sure your supporting documentation is thorough and complete. The IRS will end up asking for more information if you are missing pages and this then delays the time it takes to get your Offer In Compromise accepted. If you have a tax attorney make sure you are providing them with accurate information and do not try to hide information about vehicles, property, or investments. The IRS finds out anyway and it is easier to just have them go through everything upfront. The IRS does an in-depth investigation of your Offer In Compromise to make sure you are not hiding anything.
Negotiating the Offer In Compromise with the IRS agent
The IRS will send you a letter that they are processing your Offer and that they will get back to you by a certain date. It also lists either an assigned agent or the office assigned to your case. If you do not hear back from the IRS by the letter date, call them to follow up. The agent may call and ask for some additional information once the case is assigned.
From there the agent will usually say one of three things:
- Your Offer is for acceptance.
- They need more information to investigate your Offer.
- Your Offer is getting rejected or returned.
There is not a whole lot of negotiation at this level. Make sure to provide any additional documentation they ask for. Have a good reason why you do not have the documentation if asked (ie: property sold so you don’t have a mortgage statement). If the IRS is returning your offer ask why and see if you can ask for a rejection instead. If they are rejecting your offer also ask why. See if any documentation you could provide could change their decision.
Offer In Compromise accepted? Your case is over.
What if my Offer In Compromise gets rejected?
You can still file an appeal. This is done using IRS Form 13711. Submit that with a copy of your rejection letter. Also include any documentation supporting your appeal request. If any circumstances changed as well for the worst financially, also include that information. Sometimes the reviewing agent is too rigid or is flat out wrong and the appeals agent might still get the case settled.
Conclusion: Get That Settlement In
If you owe more than $20,000 it might be better to have a tax attorney handle it for you. If you owe less or cannot afford help, it still is better to get it in rather than do nothing. Sending in the Offer In Compromise stops IRS collections while it is pending. The IRS can file a lien, but usually not. They will not garnish or levy you while the offer is pending.
Owe $20,000+ and want to talk to one of our qualified tax attorneys? Fill out the contact form or call us at (888) 515-4829 and we will get back to you quickly. We are open Monday through Saturday, 9:00 am to 7:00 pm Pacific Time.