Offers in Compromise (IRS settlements) are very difficult to get, but the IRS does grant them.
I put together this short questionnaire for taxpayers to use to determine whether or not they qualify for an IRS settlement.
Form 656 is the Offer in Compromise (Offer) form. On its face the form seems simple enough, but if you read the instructions carefully you will soon see that most of the work is in assembling and presenting detailed financial information in support of the Offer.
Far too many taxpayers have tried to file an Offer themselves only to get rejected for failure to comply with the instructions.
The IRS receives hundreds of thousands of Offers in Compromise each year, most of which do not comply with the instructions or are incomplete. A thorough Offer filed in compliance with the instructions stands out.
The proper initial filing of an Offer greatly increases the chances of IRS acceptance.
The Questionnaire
In deciding whether or not to pursue the Offer in Compromise option, you should ask yourself the following questions:
1. Are you in bankruptcy proceedings?
If so, the IRS cannot consider and will not accept your offer.
2. Are you current with all your tax returns?
The IRS will not consider an Offer in Compromise unless you are completely current with all of your tax filing requirements.
3. Are you paying taxes on your current income?
A condition of the Offer is that you are now complying with the tax laws. This means you must have the proper amount of taxes withheld from your paycheck and remitted to the IRS or, if you are self-employed, you must make your quarterly estimated tax payments.
4. Do you own assets having a value (after deducting encumbrances mortgages and secured loans) that is exceeds the amount you owe the IRS (including penalties and interest)?
If the answer is “yes”, you do not qualify for an Offer in Compromise based on doubt as to collectability.
Points to Remember
If after answering the above questions, you believe an Offer in Compromise might be right for you, remember the following:
The IRS Will Ask for Additional Financial Information after the Offer is Filed
You can count on the IRS making several requests for additional information and clarification of the information already provided. You must respond to these requests thoroughly and on a timely basis or the IRS will reject the offer.
You Must Pay a 20% Non-Refundable Down Payment on the Offer at the Time of Filing
Remember, when you first submit your Offer in Compromise (if it is based on doubt as to collectability) you must include 20% of the amount offered and the $150 dollar application fee. If your offer rejected, your money will not be refunded but the 20% will be applied to reduce your liability.
If an Offer is Worth Filing, it’s Worth Filing Properly: Seek the Advice of Experienced Tax Counsel
The Offer in Compromise is a complex document that must be completed carefully and thoroughly.
The IRS is not going to give up something for nothing. You have to prove that it is in the government’s best interest to accept your offer.
Use a CPA who was with the IRS, or a tax lawyer CPA.
I put together this short questionnaire for taxpayers to use to determine whether or not they qualify for an IRS settlement.
Form 656 is the Offer in Compromise (Offer) form. On its face the form seems simple enough, but if you read the instructions carefully you will soon see that most of the work is in assembling and presenting detailed financial information in support of the Offer.
Far too many taxpayers have tried to file an Offer themselves only to get rejected for failure to comply with the instructions.
The IRS receives hundreds of thousands of Offers in Compromise each year, most of which do not comply with the instructions or are incomplete. A thorough Offer filed in compliance with the instructions stands out.
The proper initial filing of an Offer greatly increases the chances of IRS acceptance.
The Questionnaire
In deciding whether or not to pursue the Offer in Compromise option, you should ask yourself the following questions:
1. Are you in bankruptcy proceedings?
If so, the IRS cannot consider and will not accept your offer.
2. Are you current with all your tax returns?
The IRS will not consider an Offer in Compromise unless you are completely current with all of your tax filing requirements.
3. Are you paying taxes on your current income?
A condition of the Offer is that you are now complying with the tax laws. This means you must have the proper amount of taxes withheld from your paycheck and remitted to the IRS or, if you are self-employed, you must make your quarterly estimated tax payments.
4. Do you own assets having a value (after deducting encumbrances mortgages and secured loans) that is exceeds the amount you owe the IRS (including penalties and interest)?
If the answer is “yes”, you do not qualify for an Offer in Compromise based on doubt as to collectability.
Points to Remember
If after answering the above questions, you believe an Offer in Compromise might be right for you, remember the following:
The IRS Will Ask for Additional Financial Information after the Offer is Filed
You can count on the IRS making several requests for additional information and clarification of the information already provided. You must respond to these requests thoroughly and on a timely basis or the IRS will reject the offer.
You Must Pay a 20% Non-Refundable Down Payment on the Offer at the Time of Filing
Remember, when you first submit your Offer in Compromise (if it is based on doubt as to collectability) you must include 20% of the amount offered and the $150 dollar application fee. If your offer rejected, your money will not be refunded but the 20% will be applied to reduce your liability.
If an Offer is Worth Filing, it’s Worth Filing Properly: Seek the Advice of Experienced Tax Counsel
The Offer in Compromise is a complex document that must be completed carefully and thoroughly.
The IRS is not going to give up something for nothing. You have to prove that it is in the government’s best interest to accept your offer.
Use a CPA who was with the IRS, or a tax lawyer CPA.
