IRS Tax Debt Settlements can come in many different forms. The most common form is the Offer and Compromise, the well advertised “pennies on a dollar” tax debt settlement.
An Offer in Compromise / Tax Debt Settlement allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you cannot pay your full tax liability, or doing so creates a financial hardship. IRS will consider your unique set of facts and circumstances.
• Ability to pay the tax
• Equity in assets
IRS will generally approve an offer in compromise / tax debt settlements when the amount offered represents the most the the IRS can expect to collect within a reasonable period of time. The Offer in Compromise program is not for everyone.
Taxpayers file 52,000 Offers in Compromise each year. Of those 52,000 filed offers, the IRS accepts 12,000. The average settlement is .14 cents on the dollar. The average settlement time is 5 months. 50% of all Offers in Compromise wind up in the Appeals Division.
The IRS spends upward of 20-40 hours working an Offer in Compromise or Tax Debt Settlement. It is equivalent to an IRS tax audit of all of your finances. The IRS will check all three credit bureaus, do a complete asset search, google name search and pull up a Accuriant Report of your complete financial history for the last ten years. IRS will also take into consideration future earnings potential, age and education levels. Extreme caution should be used before filing an Offer in Compromise / tax debt settlement.
The Offer in Compromise / Tax Debt Settlement process begins with filing of the 656 and the 433 OIC. If you are not familiar in working with the IRS you should not fill out of these forms. If they are not filled out correctly, these forms will not be accepted. Every question must be answered.
Before IRS can consider your offer, you must be current with all filing and payment requirements. You are not eligible if you are in an open bankruptcy proceeding. You should be current on withholding of taxes at work and or be making estimated tax payments if you are self employed.
Submission your Offer in Compromise / Tax Debt Settlement
• Form 433-A (OIC) (individuals) or 433-B (OIC) (businesses) and all required documentation as specified on the forms
• Form 656
• $150 application fee (non-refundable)
• Initial payment (non-refundable)
Selecting a payment option for your Offer in Compromise / Tax Debt Settlement
Your initial payment will vary based on your Offer and the payment option you choose:
• Option 1: Submit an initial payment of 20 percent of the total offer amount with your application. Wait for written acceptance, then pay the remaining balance of the offer in five or fewer payments.
• Option 2: Submit your initial payment with your application. Continue to pay the remaining balance in monthly installments while the IRS considers your offer. If accepted, continue to pay monthly until it is paid in full.
If you meet the Low Income Certification guidelines, you do not have to send the application fee or the initial payment and you will not need to make monthly installments during the evaluation of your offer. See your application package for details.
Understanding the Offer Process
While your Offer in Compromise / Tax Debt Settlement is being evaluated by the Internal Revenue Service:
• Your non-refundable payments and fees will be applied to the tax liability (you may designate payments to a specific tax year and tax debt)
• A Notice of Federal Tax Lien may be filed
• Other IRS collection activities are suspended
• The legal assessment and collection period is extended
• Make all required payments associated with your offer in compromise
• You are not required to make payments on an existing installment agreement
• Your offer is automatically accepted if the IRS does not make a determination within two years of the IRS receipt date
Should you have any questions regarding the filing of an Offer in Compromise or Tax Debt Settlement call us today for a free professional tax consultation.