An offer in compromise allows individuals to settle their tax debt for an amount less than the full amount owed. The IRS considers various factors, such as the person’s ability to pay, income, expenses, and asset equity, when evaluating an offer in compromise.
The primary criterion for approval is that the offered amount represents the maximum amount the IRS can reasonably expect to collect within a reasonable timeframe. To be eligible for an offer in compromise, individuals must meet certain requirements, including filing all required tax returns, making estimated tax payments, not being involved in an open bankruptcy proceeding, having a valid extension for the current year’s tax return, and making required tax deposits if they are employers.
If the IRS is unable to process an offer in compromise, they will return the application and any application fees, and apply any payments included to the outstanding tax balance. Payment options for accepted offers in compromise may include a lump sum cash payment of 20 percent of the total offer amount, followed by payment of the remaining balance in five or fewer installments, or periodic payments made in monthly installments.
Low-income taxpayers who meet specific certification guidelines do not have to submit the application fee or make initial payments or monthly installments while the IRS reviews their offer. In case an offer in compromise is rejected, individuals have the right to appeal the decision within 30 days using the Request for Appeal of Offer in Compromise, Form 13711.
The IRS Independent Office of Appeals provides additional assistance in the appeal process. It is important to note that the offer in compromise process can be complex, and seeking the guidance of a qualified tax attorney at Anderson Bradshaw can greatly help in navigating through the requirements and increasing the chances of a successful resolution.