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Offer in Compromise – Frequently Asked Questions

What is the IRS Offer in Compromise calculator?

The Offer In Compromise calculator is a pre-qualifier tool that individual taxpayers can use initially to determine if they qualify for a settlement with the Internal Revenue Service. Financial information is input by the user to calculate an initial offer amount that can be offered to settle the individual tax liability. However, this is only a qualification tool and the Offer In Compromise booklet needs to be completed and submitted to the IRS in order to begin the settlement process.

How do I get an Offer in Compromise approved?

The first step is to determine that you qualify for an Offer In Compromise. If you are currently in bankruptcy then you cannot file an offer. If you haven’t filed all required tax returns then you cannot file an offer. However, if you are in full compliance, are not in a bankruptcy status, and you qualify financially for a settlement, then all you have to do is submit your application to the IRS. From there, an Offer Examiner will be assigned and based on your financial condition, you may get an approval right away. Just keep in mind, the best offer candidate is an individual that has little-to-no equity in assets and minimal (if any) net disposable income.

There are a lot of limitations that the IRS has put in place to make it difficult to get an Offer In Compromise approved. From compliance to national standards, it is important to understand how the IRS operates before endeavoring down this time-consuming road.

What are the Offer in Compromise guidelines?

Offer In Compromise guidelines for application submission:

  1. All tax returns must be filed. If not, the IRS will return the application without further consideration until compliance is met.
  2. All required Estimated Tax Payments (or Federal Tax Deposits if a business) must be remitted on the current tax period.
  3. The reasonable collection potential of the offer candidate must be lower than the overall liability owed.
  4. An Offer In Compromise booklet must be filed with all adequate financial information. This booklet includes a Form 433-A (OIC) (Form 433-B (OIC) for a business) and a Form 656. Both of which must be completed.
  5. A down payment and a filing fee of $186 is generally required.

Offer In Compromise guidelines after approval:

  1. Lump sum cash offers must be paid in 5 or fewer payments after acceptance.
  2. Periodic payment offers must be paid in 6 or more monthly payments and within 24 months from the date of acceptance.
  3. Full compliance of tax obligations for a period of five years. All tax returns must be filed and paid on time.

How long does an Offer in Compromise take?

Case assignment usually varies but the general expectation is 4 – 6 months for individual cases and 9 – 12 months for business cases.

When should I not file an Offer In Compromise?

Offers In Compromise are a great way to resolve a tax liability as long as you qualify. However, there are certain instances that you should not file an offer. Here is a list of times that you should not file an Offer In Compromise:

  • If your collection statutes are about to expire. The Internal Revenue Service has ten years to collect on tax debts once the balances are assessed. If the liabilities are not satisfied by the collection statute expiration date, the remaining balance will be written off. An Offer In Compromise suspends the collection statutes and there is no guarantee the offer will be accepted.
  • If you are filing or have filed a bankruptcy. Whether it is a Chapter 7, Chapter 11, or Chapter 13, if you have filed for bankruptcy, you cannot file an Offer In Compromise. Negotiations cannot be made through the IRS Offer Unit if you have filed for bankruptcy. If you are thinking about filing for a bankruptcy, reach out to a good attorney because there is a chance that a portion of your liability is dischargeable (based on age and the chapter that is being filed).
  • If you are lacking overall tax compliance. If you have not filed tax returns or have consistent issues with filing timely, an Offer In Compromise may not be your best option. You may have a good shot at getting your offer approved; however, if you cannot be in absolute tax compliance for the five years after acceptance, your liability will be reassessed to you.

Additional Questions?

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