IRS Compromise Help » offer in compromise

Question from a Reader: Will the IRS Usually Accept an Offer in Compromise?

Tripp — Thu, 12 Nov 2009 14:30:42 +0000

Recently, I was asked by a reader: “Will the IRS usually accept an offer in compromise when you owe taxes?”

“Usually” is probably not the right word. But, in the right circumstance, the IRS will accept an offer in compromise every time. You must show the IRS that you do not have the future income or the assets to pay for your tax liability in full before the IRS will accept your offer in compromise. This is done by providing the Form 433-A with the filing of your offer in compromise to show the IRS a total financial picture for your life. The only changes the IRS will make to this form is to ensure accuracy of the value of your assets, but more likely is that they will adjust your monthly living expenses – and by adjust I mean reduce – to be in line with the IRS national standard expenses. If you can show the IRS through the Form 433-A along with the other documents and substantiation that they require you to provide that you do not have enough future income or equity in assets to full pay your IRS tax debt then the IRS will accept your offer in compromise.

Offer in Compromise for Effective Tax Administration

Tripp — Wed, 11 Nov 2009 13:15:59 +0000

There are several different types of offers in compromise: doubt as to collectability (what we usually talk about and the most common type of offer in compromise which states that you simply do not have the money to be able to full pay your tax debt), doubt as to liability (where you believe you are not liable for the tax the IRS is trying to assess against you) and for effective tax administration. This offer in compromise based on effective tax administration comes into play when you know you owe the tax liability and you go through the financial information like in the offer based on doubt as to collectability and it appears you can full pay your tax liability. But, even though your financial declaration shows that you have assets and/or sufficient income to full pay your tax liability it would cause you an economic hardship.

So what does this mean exactly? Well, a common example would be a person who is advanced in age and has some severe medical problems that prevent him from working and earning an income beyond Social Security. While his home is paid for and he has a retirement account that if sold and cashed in, respectively, could pay for the tax liability he owes. However, if he cashes in his retirement account and sells his home he will be 100% relying on the federal and state governments to provide for ALL of his needs including shelter, healthcare, food, medication, medical care, and on and on. When you boil it down, this type of offer in compromise requires you to show the IRS why requiring you to full pay your tax liability would have such a negative impact on you.

Can I File an Offer in Compromise after Setting up an Installment Agreement?

Tripp — Tue, 10 Nov 2009 11:34:03 +0000

Setting up an Installment agreement can be a challenge, but it is also a great way to resolve some IRS cases. Very simply put, an installment agreement is a way to pay off your tax debt with a monthly payment plan. You may full pay your tax debt or you may not, depending on the amount you are paying each month and the time remaining for the IRS to collect against you. However, the very best way is when you can successfully negotiate an offer in compromise to settle your case for much less than you owe. People that I have worked with in the past have been wary of setting up an installment agreement (even when it was absolutely necessary to prevent or stop a levy from happening) because they did not want to foreclose the option of being able to file an offer in compromise to settle their IRS debt.

What I told them, and what I am sharing with you is that setting up an installment agreement does not prevent you from being able to submit an offer in compromise and resolve your case that way with the IRS. In some circumstances, this may just help you because it will already let you konw what type of financial information the IRS requires when submitting an offer in compromise and you may even have some of the forms required for an offer in compromise completed with only a little updating required before you can submit your offer in compromise.

Bottom line: the installment agreement will not prevent you from filing an offer in compromise.

Decision Timeline: How long until the IRS makes a Decision on my Offer in Compromise

Tripp — Mon, 09 Nov 2009 18:33:48 +0000

Question: I have filed an offer in compromise and want to know what the average time is for the IRS to approve my offer in compromise and finalize the process.

Answer: I’m glad that you have filed your offer in compromise and taken the first step towards resolving your tax problems with the IRS. The time for an offer in compromise to be resolved varies from case to case, but is generally a pretty long process. The typical offer in compromise takes about 9 months to complete. This includes the time it is being examined and potentially an appeal should your offer in compromise not be accepted the first go around.

Usually, after you file your offer in compromise it will take about a month for the IRS to send you a letter that states the IRS has received your offer in compromise and is going to be assigned to an offer examiner for review. About 30 days after that you will receive a letter from the offer examiner requesting more information or clarification on the information that you sent the first time. After that, the time will depend on the complexity of the issues in your case and whether you are asking the IRS to depart from any standard expenses or to overlook any assets to grant your offer in compromise.

Sometimes having the extra time comes in handy when you are having to wait on documents from a bank or mortgage company to send to the IRS, but on the other hand it can be kind of frustrating when you are just really ready to get the case over.

While there is no real time table in place for the review of your offer in compromise a law that went into effect in 2006 requires the IRS to finalize the review of your offer in compromise within two years of your filing the offer in compromise or the offer is automatically accepted. While many cases take a long time (well over a year) to complete, I have never had get accepted because the two years passed.

Do I Have to Pay Money when I Submit my Offer in Compromise to the IRS

Tripp — Sun, 25 Oct 2009 03:17:52 +0000

In the good ole days you could submit your offer in compromise to the IRS and it wouldn’t cost you anything except a filing fee. So, it didn’t matter how much you were offering to settle your tax debt with the IRS you knew that you were going to have several months before the IRS accepted your offer in compromise and then you would have several months after your offer in compromise was accepted to pay it in full. Things changed in 2006.

In 2006, the code was changed and a prepayment requirement was added. Now, when you submit your offer in compromise to the IRS you must pay a $150.00 application fee along with some payment towards your offer in compromise. The payment you have to make depends on the amount and type of offer in compromise you are making.

If you are making a lump sum offer in compromise payable within five months from acceptance of your offer, you must submit a 20% down payment with your offer in compromise.

If you are offering to make installment payments for 24 months, you must make the first month’s payment with your offer in compromise and continue making those payments throughout the entire time your offer in compromise is being considered.

These payments are non-refundable, so if your offer in compromise is rejected by the IRS then they will keep this money and apply it to your income tax debt. You can request what years you want your payments to be applied to when you submit them. If you do not request the payment to be applied in a specific way, the IRS will apply it in the way most beneficial to the IRS.

While 20% or the monthly payments may not sound like much, in my time representing clients with tax problems before the IRS I have noticed that many times the 20% requirement is the difference in whether the taxpayer will be able to afford to submit their offer in compromise or not – even if the overall offer in compromise would save them thousands and thousands of dollars.

The only exception to this is if your income meets the poverty guidelines as set out by the IRS in the Form 656 – Offer in Compromise publication. If you satisfy these requirements, you will be required to submit an affidavit stating your income and how it qualifies for not having to pay an application fee or down payment and then the IRS will consider your offer in compromise without the money.

If you do not qualify for that exception and you do not send the correct amount of money with your offer in compromise, you can rest assured that your offer in compromise will be returned to you without any consideration by the IRS.

What is an Offer in Compromise

Tripp — Thu, 15 Jan 2009 18:51:24 +0000

So, you’re here, but you aren’t sure what an offer in compromise is. You got on Google and started typing in all of the things you could think of to try to figure out what you can do to get the IRS off of your back. You have seen the late night television commercials where companies are offering to settle your tax debt for “pennies on the dollar.” But how?

The answer is: through the offer in compromise program that the IRS has. Basically, an offer in compromise is a very formal process that you go through with the IRS to negotiate a lower amount for you to pay for the income taxes, penalties and interest you owe. Now, it isn’t as easy as calling the bank or some other person that you owe money to and negotiating a lesser amount. The IRS forces you to go through several steps and provide extensive information to them in order to prove that you actually cannot afford to pay the taxes that you owe. This is good for you. Why? Because it is based on your specific financial and living situation at the time you file your offer in compromise. It does not make any difference how much you owe the IRS – whether it is $1,000 or $100,000.

Over the coming days and weeks we will be looking into the offer in compromise program and talking about specific information that you can use while you are filing you offer in compromise. Please be sure to add our RSS feed to your feed reader so you can keep up with breaking IRS news and more and more great information about the offer in compromise process.