According to the Internal Revenue Service (IRS), an offer in compromise provides individuals with the opportunity to settle their tax debt for an amount less than the total they owe. The IRS takes various factors into consideration when evaluating an offer, including the individual’s ability to pay, income, expenses, and asset equity.
An offer in compromise is approved by the IRS when the amount offered represents the maximum the agency can reasonably expect to collect within a specific timeframe. 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 active bankruptcy proceeding, have a valid extension for the current year’s return, and have made tax deposits as an employer for the current and previous two quarters.
In cases where the IRS is unable to process an offer in compromise, the agency is obligated to return the application and offer application fee, applying any offer payment included to the outstanding balance. There are different payment options available, such as a lump sum cash payment of 20% of the total offer, followed by the remaining balance paid in five or fewer installments, or periodic payments in monthly installments.
Individuals who meet the low-income certification guidelines are exempt from submitting the application fee, initial payment, or monthly installments while the IRS reviews their offer. If an offer 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.