Offer in Compromise

An offer in compromise allows a taxpayer to settle a tax debt for less than the full amount owed according to the IRS. It may be an option if you can't pay your full tax liability or doing so creates a severe financial hardship. The IRS considers the taxpayer's unique set of facts and circumstances such as:

  • Ability to pay
  • Income
  • Expenses
  • Equity in assets

The IRS generally approves an offer in compromise when the amount offered represents the most they can expect to collect within a reasonable period of time.

A taxpayer is eligible to apply for an Offer in Compromise if they:

  • Filed all required tax returns and made all required estimated payments,
  • Are not in an open bankruptcy proceeding,
  • Have a valid extension for a current year return (if applying for the current year), and
  • Are an employer and have made tax deposits for the current and past 2 quarters before applying.

If a taxpayer applies for an Offer in Compromise and the IRS won't accept the offer, they will:

  • Return the application and offer application fee, and
  • Apply any initial payment offered to the balance due.

The initial payment varies based on the offer and the payment option selected:

  • Lump Sum Cash: Submit an initial payment of 20% of the total offer amount with the application. If accepted, the taxpayer will receive written confirmation. The taxpayer must pay any remaining balance due on the 'offer in five or fewer payments.
  • Periodic Payment: Submit the initial payment with the application. Continue to pay the remaining balance in monthly installments while the IRS considers the offer. If the IRS accepts offer, continue paying monthly until it is, paid in full.

If Your offer is rejected, the taxpayer may appeal the rejection within 30 days.

What Happens if I Can't Pay My Income Taxes?


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