The Key to a Successful IRS Offer in Compromise
A tax offer in compromise is merely an agreement between the IRS and a taxpayer whereby the taxpayer’s tax debt is settled for an amount that is less than the full balance that is owed. Generally, the IRS will not accept an offer in compromise if it feels that the tax liability can be paid off in full either in a lump sum payment or through an installment agreement.
Prior to submitting your request for an offer in compromise, make sure that you explore all other options first. You may be able to borrow funds from family or friends and or even be able to take out a personal loan.
Taxpayers must file Form 656 or Form 656-L. Be advised that if you have a tax lien on record prior to acceptance of the offer, the lien will not be released until the offer terms have been satisfied or until the tax liability is paid in full, whichever occurs first. A Notice of Federal Tax Lien is often filed during the course of an offer in compromise settlement investigation.
Once the applicable forms are filed, make sure to respond promptly to any additional requests the IRS may have. Often the IRS will just need clarification on your personal information or financial situation. A timely response will make it easier to get a tax offer in compromise accepted.
Along with your completed forms you must make sure that you make the required payments. The general rule that you must follow when determining how many offers and the related application fees due is that there is one payment fee and form per entity. Form 656-B contains an application fee and a payment matrix that will help you determine the number of forms that must be filed and how many application fees are required.
An important step in the process is making sure that you are current on all your tax filings. It will not look good to the IRS if you are not filing tax returns or making timely tax payments.
Remember that if your offer in compromise settlement is accepted, you are required to timely file all income tax returns and make timely tax payments for five full years or until your offered amount is paid in full, whichever time period is longer. If you fail to adhere to these conditions, it can result in default of the offer and the IRS can then collect the amounts originally owed plus any penalties and interest.
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