According to the Internal Revenue Service (IRS), individuals have the option to settle their tax debts for less than the full amounts owed through offers in compromise. When considering an offer in compromise, the IRS takes into account factors such as the person’s ability to pay, income, expenses, and asset equity.
Offers in compromise are typically approved by the IRS when the amount offered represents the maximum amount the agency can reasonably expect to collect over a specific period of time. To be eligible for an offer in compromise, individuals must have filed all required tax returns, made necessary estimated payments, not be involved in an open bankruptcy proceeding, possess a valid extension for the current year return, and have made tax deposits as an employer for the current and past two quarters before applying.
In cases where the IRS is unable to process the offers in compromise, the agency will return the application and offer application fee. Any offer payment included will be applied to the balance due. Payment options for offers in compromise can include a lump sum cash payment of 20 percent of the total offer, followed by payment of the remaining balance in five or fewer payments. Alternatively, individuals may choose periodic payments, making monthly installments towards the balance.
Individuals who meet the low income certification guidelines are exempt from submitting the application fee, initial payment, or monthly installments while the IRS reviews the offer. If an offer in compromise is rejected, individuals have the right to appeal within 30 days using the Request for Appeal of Offer in Compromise (Form 13711PDF). The IRS Independent Office of Appeals also provides additional assistance in such cases.