What Is an Offer in Compromise?

If you owe the IRS money and have tried everything to pay it off with no luck, consider making the IRS an “offer in compromise” (OIC) to settle your tax bill.  An offer in compromise allows taxpayers to wipe out their tax debt by paying the IRS less than what they owe in back taxes. 

The IRS is generally reluctant to agree to offers in compromise, but will do so when the OIC represents the agency’s best shot at getting the largest amount of debt possible from the taxpayer within a reasonable amount of time.

The Deciding Factors

When considering a taxpayer’s OIC, the IRS will look at four factors:

  • The taxpayer’s ability to pay;
  • The taxpayer’s income;
  • Expenses and obligations; and
  • The value of the taxpayer’s assets.

Taxpayers must also be current with their filing and payment requirements, and cannot be in an open bankruptcy proceeding.

The Process and Filing Requirements

When you submit your application for an OIC, you will also have to include a $150 filing fee and an initial payment on the settlement amount (unless you meet the Low Income Certification guidelines.)  This payment is non-refundable, but the amount will vary based on the payment option that you select.  There are two payment options to choose from:

  • Lump Sum: in this option, you pay your settlement amount very quickly.  If you select this option, you must submit 20% of the settlement amount as an initial payment, then pay the remaining balance in five payments or less.
  • Periodic Payment: with this option, you will submit an initial payment of your choosing, then continue to pay off the balance of the debt in monthly installments.

If you comply with all the filing requirements and the IRS still rejects your offer, you can file an appeal of the decision within 30 days using Form 13711, Request for Appeal of Offer in Compromise.

Next Steps

Contact a qualified tax attorney to help you navigate your federal and/or state tax issues.

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